97. RV Parks – The Next Big Real Estate Investment Opportunity With Robert Preston

PILF 97 | Real Estate Investment Opportunity

 

In the first episode of 2023, Robert Preston, Co-founder of Climb Capital, reveals the next big real estate investment opportunity– RV Parks! He searches for, and acquires, value-add parks that produce a durable yield through the life of the investment. Robert started in real estate flipping single-family homes and quickly moved to multifamily housing and Mobile Home Parks before realizing that the competition for properties made these asset classes more like commodities.  He recognized there was money to be made in a more unique asset class which led him to RV Parks. Learn the barriers to entry in this asset class and why Robert thinks RV parks are a great investment if properly managed.  Tune in to learn more!

Listen to the podcast here

 

RV Parks – The Next Big Real Estate Investment Opportunity With Robert Preston

I’m excited to have Robert Preston with us. He’s the co-founder of Climb Capital, specializing in buying and selling RV parks. He searches for and acquires value-add properties that produce a durable yield through the life of the investment. Robert, welcome to the show.

Jim, I appreciate it and I’m honored to be on this show. You have a big group and I’m excited to learn about your group and share.

We are excited because we’re going to be talking about RV parks now, and that’s a new asset class and there’s a lot of chatter in our community. The way I want to start out is if you could tell us about your financial journey and how you got into real estate. I think you went into multifamily. How did you end up in RV parks of all places? We would love to hear the story.

For me, it started in Afghanistan. In 2012, I was a Marine Corps pilot. I was flying the Osprey in Afghanistan on my second combat tour. About midway through that deployment, I had several scary nights and lots of close calls associated with the combat side of it. That gave me an opportunity to evaluate my life.

Coming out of there, I had big three decisions and changes for me. One, I’m a Christian. I always put it out there. I dedicated my life back to Christ. The second was to stop messing around and marry the woman I always loved, Misty. She’s now my wife. The third was that maybe there’s a different way to make a living not getting shot at. That’s how it began from the real estate side of it.

From there, I read whatever books I could get my hands on like Rich Dad Poor Dad and The Art of the Deal. Investing For Dummies was one of them. I came back and started wholesaling houses. I didn’t have any cash or credit. The credit was okay. I didn’t have any cash and negative net worth. I was wholesaling houses. I built some capital. I started flipping some of those houses. I continued to flip houses, and then in 2013 was when I linked up with Jeremy, my co-founder here at Climb Capital. We came back from starting in flight school.

He started investing. We said, “Why don’t we try to do the same thing?” We did. Our first commercial deal was a sixteen-unit mobile home park. That went well. We started buying distressed apartment complexes. Our first apartment complex was a 60-unit apartment complex that we bought in receivership or foreclosure out of the bank. It was distressed. We turned it around, got that done, and then continued to do that. We continued to buy mobile home parks and distressed workforce, value-add, class-C-type multifamily stuff. I did that all the way up through 2020.

Summer of 2020 rolls around. I leave active duty in the Marine Corps. I go full-time into running this investment business. The pandemic hits and lots of things happened. For me, in finishing a career as a pilot, one of my goals was to buy an RV and travel for a couple of months and take the family, my wife, dog, Golden Retriever, and four kids. Load up and go.

I finished up the Marine Corps and did that. I fell in love with the product. As an RV-er, I fell in love with the RV lifestyle. Coincidentally, we bought our first RV Park in early 2020 on that vacation. On the retirement trip there, I found another park to buy. I ended up buying that on vacation and getting that under contract.

To make the long story long here, we came back and sat down with Jeremy. I said, “We are seeing the prices of multifamily get ridiculous. We are seeing the competition and big uptake in buyers. The cap rates don’t make sense anymore. The market doesn’t make any sense anymore., with eviction moratoriums and all this type of stuff. This is maybe not the best place for us to be putting a lot of effort into.”

We made a hard pivot and said that there was no reason that we can’t apply the whole syndication principles and our business model to RV parks as an investible asset just like we were doing a multi-family mobile home park. We made a pretty hard pivot to move into the RV park space. I’ll stop there. That was quite a bit.

That’s fantastic. First of all, thank you for your service. That means a lot to all of us that you were out there protecting the nation. Thank you for that. Getting back into real estate, how did you first decide that real estate was going to be it? I know you read the books and everything like that, but how did you get to the books? How did you figure out, “I got to do something different?” I got to tell you, there are other things you can do besides getting shot at or real estate. There’s a bunch in between. How did you find real estate?

I always tell everyone that I’m not the smartest guy. I’m not the brightest guy. I try to find things. When I’m in Afghanistan, “What’s a different way to make a living?” Every rich person I know or wealthy person I’ve ever read about has something to do with real estate. Let’s start there. That’s literally why real estate was. All the rich people I knew had something to do with real estate. I figured that was probably a logical place to start. I just copy and paste.

PILF 97 | Real Estate Investment Opportunity
Real Estate Investment Opportunity: Every rich or wealthy person has something to do with real estate.

That makes total sense to me. That’s how a lot of people get started because if you look around, if you want to build wealth, if you look at the wealthy people, they either are in real estate or they own a business. They’re not working for the business. They own one or they own real estate. Talking about those first two parks. You get the whole family. You go on a little RV trip and as you’re cruising around, you decide, “’l’ll buy this one. I’ll buy that one.” In 2020, we went on an RV trip as well, a pandemic trip kind of thing, but we came home and we didn’t own any of the RV parks that we stayed at. Can you explain how that happens? Your family’s on the trip and dads out buying an RV park. How did you do that?

As my wife would probably criticize me, she would say, “Anything is for sale.” For me, I’m always trying to make a deal. I love deals. I would flip a lawn mower if I could just to make some money off of it. To answer your question. The very first park we bought was brought to us by accident essentially, and that was not on the trip.

The first park was brought to us because someone thought it was a mobile home park. “Do you guys buy mobile home parks? Do you want to look at this?” I said, “Sure.” I looked at it and that park was a very simple park. It was 36 pods, but it was run like a mobile home park. They are all annual rentals with people who happen to live in there. That very first one for us was honestly like, “We don’t necessarily know how to do this, but this is close enough to what we’ve been doing. It’s a price point that makes sense. The cashflow makes sense. Let’s buy it and figure it out.” That was the very first one. We bought it and learned on our dime on that one. It was a small price point. We paid $550,000 for it, and then we ended up selling it for $1.2 million. That was a good turnaround.

If a price point and the cash flow make sense, buy it and figure it out. Click To Tweet

The second park, the one we found on the trip was just my habit. If you own real estate, I’m probably going to ask you if you want to sell it. We’re there. The kids are playing and doing the campfire thing. The owner ran the park, which is fairly common. She’s there, an older lady. A nice older couple and she’s giving the kids popsicles. They’re running around and having a good time. We’re talking and I was like, “Do you want to sell the park?” She goes, “Actually, yes. It’s for sale. It’s under contract.”

I said, “When is it supposed to close?” She gave me a date. It was about fifteen days from when we were there. I said, “The appraisal is good. The survey is good, etc.” She was like, “I don’t know. I haven’t heard anything on that.” That’s when my antennas went up. I said, “You haven’t seen a surveyor. Is the title search done? I’m assuming you’re getting some pre-closing documents.” “No.”

I said, “Here’s probably what’s happening. Probably someone put this thing under contract. They’re trying to find another buyer and they’re trying to get the assignment fee. They’re going to resell it. If that doesn’t work and it doesn’t close. Here’s my name. Here’s my number. Please call me.” That’s what happened. Fifteen days later, we’re still on the trip. I get the call, “This closing is not going through. Do you still want it?” I said, “Yes.”

How did you figure out the economics? I get it. It’s maybe similar to multifamily. People are spending the night in a property you own or on a property you own, but it’s so different. How did you figure out, “This is a good deal?” You’re buying a business a little bit more than real estate. It’s an operating business.

I want to make sure I point this out. This is not the typical type of business or type of park we buy, but this is another example where I was buying 30 acres on a lake right off the interstate South of Cincinnati. I had three cabins. It was 40-some sites, a clubhouse, and all that stuff. I know what I was paying as a customer and I was able to buy that for $700,000. This is one of those ones where you just know purely from common sense that it’s worth what’s there.

To answer your question a little bit more specifically, we evaluate it very similarly to multifamily. What are the rents? What are the vacancies? What are the expenses? What’s the NOI? We then put a cap rate. If the cap rate is a little bit higher, then we’d use it for multifamily, but it’s going back to the fundamentals of the economics as well.

I’ve heard you say RV parks are the next biggest opportunity in real estate. Explain that. Why is this such a great opportunity?

Here’s my theory, if you’ll go on a trip with me. If we look at any asset class, it has similar stages. Let’s take apartments as an example. We’re all pretty familiar with apartments. If we look at history, we have the Industrial Revolution. We brought people back into a city or the invention of the city essentially because people had to live close together to go to the factories. Because of the lack of housing, we started putting houses on top of each other.

We created the apartment complex. That was essentially what we call a new invention. It became more and more. We built more and more. We developed more and more and now, it gets to the point where it is essentially a commodity. It is a tradable asset that is replaceable. We see that in many storages. That timeline is about 100 years later. We now have suburbs because of vehicles that can have transportation. Now, we have suburbs and we have all this stuff because we’re a wealthy nation. We got to have a place to put it.

In 2000-ish, we start seeing many storages pops up everywhere. Now, we’re probably at a point where it is a commodity. For us, our hypothesis is we come back from World War II successfully. We have the Baby Boomer generation coming out of that. We have the invention of the SUV, a vehicle that can go off-road, and the idea that we want to explore America. We start making campers at a mass scale and RVs, etc.

That’s about 50 years past where the mini-storage timeline is. It brings us all the way up to the present day where now, it is becoming a widely popular activity. There are RV parks developed, but there are not that many developed at a mass scale like you would see in mini-storage or apartment complexes, but it’s a cultural shift. We feel like we’re at the beginning phase of the institutionalization or commoditization of RV parks.

You’ll see a lot of them being developed over the next 10 to 20 years. We’ll start seeing more investors like us coming into it and more institutions, REITs, Wall Street, etc. That’s why I think it’s the next best thing. It’s following a very predictable path that we’ve seen in other asset classes. I’m excited to be trying to stay in front of that as far as possible.

We touched on this a little bit. How does the expertise that you developed in doing Class C multi-family and mobile home parks transfer to RV parks? One of the biggest risks that I’ve seen as a passive investor is when I find operators that are good at one thing. They’re good at multifamily, and then they find something else. They chase the squirrel just like I do. They’re like, “RV parks, that sounds interesting.”

You’re a multifamily guy and I’m supposed to give you my capital and have you do a great job on something completely different. It’s the one area where I’ve been burned a couple of times where I went with an operator who didn’t have experience. Nobody has experience here. It’s a pretty new asset class and syndication. That’s a long way of asking, how does your expertise help and how do I as a passive investor get comfortable investing in you as a new operator in this asset class?

I’m going to answer it in a backwards way. There are two big barriers to entry for operators going into RV parks. One of the reasons that the prices of parks are still relatively low, which means returns are high and there’s yield there, is because it is harder to go from apartments or any asset into RV parks. There are two barriers to entry. One is the debt. There is generally no institutional level debt for a lot of RV parks, and most parks don’t qualify for them. It means, to be able to finance your park, you have to be able to prove that you have experience, track record, net worth, liquidity, and all this stuff because you’re ultimately going to a local regional bank, a credit union, etc.

It’s a lot more relationship-based and they’re judging me as the operator. You can’t just say, “Here’s an apartment complex, Fannie Mae. Throw it in there. Hit the checkbooks. Go non-recourse.” Most of the loans right now are still personally guaranteed by myself and Jeremy. We’ve got a lot of skin in the game there. The debt is not that easy and it’s not standardized.

Two, and this is the big one, is most of the time, there are no third-party property management services out there. As a sponsor operator on an apartment complex, I’m not degrading anyone, it’s pretty easy to raise capital. It’s pretty easy to put stuff in place and it’s pretty easy to hire a third-party property management company to run it. With RVs, that doesn’t exist.

What gave us the ability to pivot and what makes us different from other operators or sponsors is when we were managing the mobile home parks and apartments, we got a little bit fed up with the third-party services. We created and started self-managing with employees. We created a subsidiary property management company. We now manage everything and all of our own assets. We just do that. We’re not doing any third-party management.

That in itself allowed us to buy multiple parks because we had a property management company. We had a system to be able to put in place. What you’ll find right now is that most RV parks are owned. They’re owner-operated or people only own 1 or 2 parks at the most and they have to be there. For us, it was being able to have a system, have it in place, have a team of property managers, etc. to be able to self-manage it.

PILF 97 | Real Estate Investment Opportunity
Real Estate Investment Opportunity: Most RV parks are owner operated.

Right now, we’re managing nine parks at a time. We’re continually adding to that. That was a long way of saying why we are equipped and able to make that pivot, and why we have made that pivot relatively successful. It’s because we had preemptively done a lot of things on the multi-family side to be able to be as vertical as possible and stay internal as a company as possible.

Talk to me about the debt you get from the smaller regional banks, credit unions, and that kind of thing. What kind of terms do you get? Especially when everyone is talking about the interest rate increase, inflation and all these. It’s slowing down transactions and volume in the multifamily space and other asset classes. What kind of debt are you able to get? Is there fixed debt available? Is it all variable? Can you talk about the debt and the terms that you typically see?

The rate is changing, but standard terms would be either a 5-year term or a 10-year term fixed rate. Typically, we’re getting 20 to 25-year amortizations and 75% loan-to-cost or loan-to-value. A lot of times it’s pretty easy for us to build construction into those loans. We closed some deals at 4.5% interest rates. Right now, it’s probably 6.5% to 7.5%. The rate is probably very competitive and very similar to any other rate. The big thing is that, generally, they are going to be full recourse on us the sponsors. That’s probably the big change but otherwise, it’s pretty similar to probably what you guys are seeing.

You talked about in-house property management. What does that look like at the park? When we went camping, you’d pull in and some retired person would have their camper set up. They’re the ones collecting the fees and managing the property. I imagine it’s a little bit more than that at the parks that you’re talking about. How does property management work and how much staff do you need at these places and the seasonality? Can you talk about that in general?

In general, they’re all variables. Every park is different. Every season is different. Our typical model is that we’re going to have a general manager who is a salaried employee. They’re the ones that we’re communicating with on a daily basis and doing the company meetings. They have P&L responsibilities. They’re the ones held to the standard. It’s up to them to run and facilitate their park in regard to the staff.

The gentleman that probably checked you in, we would call a camp post. We use those a lot. An elderly couple, a retired couple, young or whatever that happens to be living there for a long period of time. They’re friendly. They’re a great resource. They’re paid part-time by the hour, but they’re under the general manager who then reports back to us or to our president of the property management side. The beauty of Zoom is we can do a lot of stuff virtually. Our meetings are virtual and we have company meetings with all the property managers every Tuesday. Are you familiar with the EOS system and Traction, the book?

I’ve heard the book.

We run our company off of the Entrepreneur Operating System by Gino Wickman and Traction. We have an operating system for the business that we have in place.

Talk about the parks themselves. I know there are all kinds of different ones. You have a state park that doesn’t have a whole lot of amenities, and then you have KOAs that have swimming pools, and now there are all kinds of parks that are adding all kinds of new stuff. What kind of parks are you looking for? Are they all different? Are they all seasonal? If you’re in Cincinnati, you’re not camping in the winter, I don’t think.

One of our big criteria is we do not buy seasonal parks. We are buying parks that are open all year. The one in Cincinnati is open all year because it’s right beside the Ark Encounter, the giant Noah’s Ark theme park up there. It’s in Cincinnati. There’s a ton of long-term demand for construction workers. That one still is open all year for us. We’re buying parks that are open all year, which primarily means the South and Southeast or South of the freezing line.

We focused on buying true campgrounds. We do ones with amenities, pools, ponds, streams, picnic tables, and playgrounds. That means we are not buying in Oklahoma, Texas and the Midwest. You’ll find a lot of “RV parks” that are just parking lots for the oil industry. We don’t buy those simply because I don’t want to be that dependent on an industry that can fluctuate so much.

Most of our parks are about 100 sites or more. They are on or close to an interstate exit. That’s one of the big criteria for us. Ideally, they’re close to a tertiary or larger market. City-wise or equidistance in between them. We like to buy ones that have some room to expand and we can add sites in pretty quickly.

Is that the main value-add, adding new sites? Is it the trampolines, the water, the lake, and all that other stuff? Which is the one that is most common and which is the one that brings the most additional revenue? I know this is a multipart question but I assume you’re buying from mom and pops who have paid it off so they’re not adding all this stuff. Is that the business model too?

Yeah. The value adds from an owner’s perspective and an investor’s perspective are generally two phases for us. You’re correct. A lot of our sellers are in the 60-plus age range. They either built the park or have been there for twenty-plus years. They have the mindset that if something is to be done, it must be done perfectly, therefore, it must be done by them.

They have no employees a lot of times, and they feel very chained and tied to this park. They’re also commonly not utilizing technology very well. When we come in and buy a park, one of the first things we do a lot of times is as simple as we got to make sure it’s on Google Maps. We got to have a Facebook page and a website. We have an online booking system where people can book online instead of having to call in on the phone. Believe it or not, that is a major value-add that we can do overnight.

When we do that, we are commonly taking the nightly rate. We bought a park in December. The nightly rate was $37 a night. Immediately the next day, we changed the nightly rate from $37 to $45 a night. That doesn’t sound like much, and it also isn’t much for your typical customer. We’re talking about maybe a $30 change in their stay. If you think about that, that’s a 20%-some increase in revenue immediately and instantly throughout that next year.

The beauty that I love about RV parks is there are a lot of small quantity and dollar amount changes that always have a big magnitude at the end of the year. By selling firewood or ice or whatever, you’re making $2 or $3, but you’re making it every day all the time. That’s phase one for us. Come in, get the social platforms, get the online presence ready to rock, and get rates back up to the market. We’re going to start looking at what we can do infrastructure-wise to improve.

The beauty of RV parks is there are a lot of small quantity dollar amount changes that always have a big magnitude at the end of the year. Click To Tweet

The second most desirable amenity besides a pool is good Wi-Fi. That is the top amenity that we’re focused on. We make sure we have really good Wi-Fi internet systems throughout the park. The next thing is if we can add a site, we’ll find some space for it and put it in. At the end of the day, it probably costs me altogether at the most $10,000 to build a new site. If the infrastructure is in place, that site is probably going to make me about the same amount that year. It’s a one-for-one return on our CapEx going into that.

I’m shocked at the price of building a site. I would think you take a bulldozer and throw down some gravel and a sewer. What’s with the $10,000?

I thought the same thing too. It is a bit shocking. Usually, you’re going to have some type of engineering involved to be able to build the thing, whether it’s septic, sewer or water. The price of wire nowadays like a linear foot of wire is now $15 a foot for underground wire. It’s the same for the plumbing. The pedestal now is three times the price. There’s a lot of material cost that has gone up there, depending on the area, whether we’re bringing rock or concrete, etc. $10,000 is probably an overestimate sometimes, but that’s a good number to be safe with. It’s amazing how much a parking lot costs very quickly.

Where do you find these RV parks? I don’t imagine there are a lot of brokers that are around selling these. Do you just pile the family in the RV and drive around until you find one? I’m sure you have better ways of finding them than that, but how do you find these parts? Is it just the older couples that are selling or is there a real market for this?

Driving around with the RV is my favorite way to do it. It’s internal client capital. We got eight full-time employees. Two of those are dedicated to marketing. We have a full-time acquisitions director and underwriter, and then we’re outsourcing some VAs for cold calling, skip tracing, and all that type of stuff. We’re taking that same strategy of a lot of wholesalers to use for single-family and putting that in place to find the off-market leads.

There are all the brokers that we’re trying to make sure that they know us and vice versa. We’ve done a great job with that. You would be surprised at how many new brokers, even the big brokers like Marcus & Millichap and all those types of guys, have now stood up an RV investment arm or group inside of there. There are a lot of brokers now becoming true professional brokers and specializing in it, which is a great indicator for us that we’re on the right track.

We talked a little bit about this, but the inflation, interest rates, gas prices and all that. I have heard that it helps RV parks because it’s still cheaper to do a vacation in an RV than on an airplane. Is that what you’re finding? I know there’s a backlog of people trying to buy RVs. Is the market still growing for this type of travel, even with the way the economy is?

We think so and so far the data has shown us that. Interestingly enough, we have present-day experience. In the summer when gas prices went way high, at that time, we’re managing nine parks. We’ve got some pretty good data across the Southeast. What we saw was a lot of cancellations. That would be logical, but what happened was the people who canceled were traveling around 750 miles plus, and they would cancel their trip. Immediately, we’d get re-booked by someone in the next closest city or a couple of hundred miles away.

At the end of the day, it was still one of our best summers. We had a lot of cancellations and re-bookings. People are traveling a lot less distance. That goes back to why or how we buy parks. I love Wyoming. Wyoming is a beautiful state. I love the RV out there, but it would scare me to death to be an RV park owner in Wyoming because it’s a long way from a lot of people.

I live in Florida. There are people everywhere. People always go to Florida. People go ten minutes to go camping here. That’s what gas prices have shown us this summer. It’s simply that people travel less and they make fewer stops, but they still go. If we buy the parks in the right areas, it’s fine. We looked at data when we went into this from 2005 to 2010 to see what happened in the last recession, and we found some interesting stats there.

The sales of RVs, brokers and dealers suffered significantly in the 8 to 10 mark. Sales more or less went to zero on new RV units, but the parks stayed. It kept the same occupancy and they kept essentially the same rates, even with a little bit of an increase. It goes back to once you own the RV, you’re going to use it. It is still the cheapest way to go on vacation. You’ve got some sunk costs. You’re staring at the thing in the front yard.

Your kids are saying, “When are we going to go camping?” At the end of the day, $35, $45 or $55 a night is not that big. Not to diminish people’s heartache during that time period, but people still go on vacation. To your point, there’s a lot of great data. I wish I had it all in my head. We just came back from an RV conference about next year’s plan for people to RV is increasing even in light of a recession.

We’re a community of passive investors. We look at a deal first through the sponsor. We vet the sponsor, and then the deal is on the market. We know how to vet a sponsor for multifamily or self-storage. How do we vet a sponsor like you? How do we make sure that we’re investing with the right company in this asset class? What are the questions we ask and what’s different about them? How do you go about vetting someone?

First, I would say you don’t have too many options. It should be pretty quick and easy for us.

For now. That’s going to change.

It probably goes back to the barriers of entry thing. You’ll learn a lot about a sponsor very quickly if you ask how they’re managing, who is managing, and what their thesis or philosophy on property management is. In the RV space, that’s going to be very difficult if you don’t have some experience there. It’s similar to debt. How are you getting the debt? As I said, it would be very uncommon for a bank to lend to a first-time RV park owner. That’s probably not going to happen. Those are probably the top two questions. It would be great to know if they are RV-ers or how much they know about RVs, specifically. You could visit some parks and try to think what else would be good call references. It’s the standard stuff.

PILF 97 | Real Estate Investment Opportunity
Real Estate Investment Opportunity: You’ll learn a lot about a sponsor very quickly if you ask how they’re managing, who’s managing, and their thesis or philosophy on property management in the RV space.

How do we analyze the deal then? Typically, we look at different metrics and we have an idea of what we’re looking for. If you threw an RV park in front of me, I could maybe evaluate it if I wanted to camp there, but I have no idea whether I want to invest in that deal. How does a passive investor look at one of your deals? I don’t want to underwrite it from scratch as you do. I vetted you. I trust you. I want to invest with you. Now, your deal comes. I just want to look at 3 or 4 metrics, and make sure that they meet the parameters and then off I go. What are those metrics or how does a passive investor evaluate that?

It’s going to be similar. We do the same thing. What is the market rate either by the night or by the month? Those are the two metrics that we measure and then, what is the market occupancy by the night and by the month? Sometimes if you look at our underwriting performance, there are going to be line items on the income. It would be short-term income and long-term income. The third component is we bring in tiny homes and place those on Airbnb. That’ll be cabin rental income. That’s how we’re looking at it. You guys would want to see that.

If you were looking at a deal and they say that they’re going to have 95% occupancy on short-term rental on the retail side, that’s too much. That’s ridiculous. No park is ever that full all the time. You’re going to see a lot higher vacancy numbers. You should expect to see higher vacancy numbers in the proforma underwriting. That would maybe scare you as a multifamily investor, but you still look at the gross revenue component of that.

They say they will have 95% occupancy on short-term rental on the retail side. That's ridiculous. No park is ever that full all the time. Click To Tweet

A lot of times, we might underwrite short-term rental, the nightly rate. That might be as low as 60% or 50% occupied, depending on the area. At the end of the day, it still generates a significant amount of income conversely with the stuff. You’d want to look for overaggressive estimates on income via vacancy because there’s a lot more vacancy. On expenses, RV parks have a lot cheaper taxes and insurance. Those are benefits but your payroll is usually a good bit more because you’re providing a service. You’re a hotel that’s flat. If you see underwriting that has very similar, but not much payroll or is similar to a multifamily deal, that’s probably a red flag. They’re grossly underestimating some expenses.

It’s fantastic to have a couple of little nuggets to look for because when I’m doing multifamily in one of those other deals, I’m not looking at the whole thing, every little metric. I’m just picking out a few of my favorites and knowing that if you’re expecting, they could seem to be around 60%. If I see someone that’s 80% or 85%, that gives me a question to ask, “Why is it so high?”

There could be a good answer. It depends on the area. If I’ve got an RV park in Tampa, Florida, it’s going to be full no matter what you charge or what you’re going to do. It’s the beauty of some locations. There are some extremes, but if you bring me something that says you’re going to be 95% occupied in Oklahoma, I’m going to tell you you’re full of it.

The investment, are you doing a fund or is it a single asset? How does that work if someone wants to invest? Is it accredited or non-accredited? Can you talk a little bit about the opportunity?

Right now, the opportunity that we have opened is a 506(c). It’s an accredited investment deal and it is a fund. It is what we call the campfire fund. It’s a $20 million fund that we’re raising capital for that has two classes. You can mix and match and figure out what makes you click. The two classes have different return structures. The simple one is an 11% preferred return and it’s the first 11%, but then that’s capped off. You get 11% a year and you’re happy. The second class is very typical to a multifamily one where it’s a 7% preferred return and then a 60/40 split, 60% to the investor and 40% back to us. You can choose either of those. You can mix and match, etc. What else is important there?

What about the minimum?

The minimum for either class is $50,000. We are taking a limited amount of the first class, the 11% preferred return. That is close to being full and the second one is open.

Where do they sit in the capital stack relative to each other? Is the class that gets the 11% get paid first before the other class?

They are at the top of the capital stack. They’re a true preferred.

The last question I like to ask is, what is a great podcast that you like to listen to?

I don’t listen to podcasts that much.

You can give me a book instead. If you’re a reader, that’s fine too.

Have you ever read Pitch Anything by Oren Klaff?

I haven’t read it yet. I’ve heard about it.

Pitch Anything by Oren Klaff is a lot about the actual chemistry that’s happening in your brain when you’re dealing with deals and negotiating and stuff like that. I enjoyed that a lot. I don’t listen to podcasts too much.

You have to listen to this one when it comes out. If the people want to get in touch with you, what’s the best way they can do that?

Our website is ClimbCapital.com and my email is Robert@ClimbCapital.com. We’re on all the social platforms. You can find us there.

Thank you so much for being on the show. This was fascinating. We appreciate you.

Thanks, Jim. This is awesome.

I enjoyed that conversation talking about RV parks. I love how he went on an RV trip and found an RV park and bought it. That is super interesting that he got into this asset class partly because he is interested in RV-ing and he does it himself with his family. That is like the Peter Lynch way of looking at things. It is to invest in what you know. That’s what Robert is doing here. He is an RV park guy. He travels around with his family. That’s what he is investing in.

Also, the competition and how everyone is doing multifamily led him to a new asset class. He is looking for multifamily and even self-storage now as a commodity. It’s always harder to make money investing in commodities than something unique and different, which is different from where RV parks are now.

In barriers to entry, he talked about debt. You’re not going to get through institutional debt. It’s going to be a little bit different. You have to work harder for it. You have to work harder for something. There are going to be fewer people that are willing to do that. A lot of people might look at it and say, “I can’t find debt,” and give up. Somebody like Robert is going to dig and find that small community bank that is willing to lend. I think that’s important.

The other barrier to entry that he talked about is property management where it’s a challenge. You have to understand the RV park business and get the property management right. That’s a barrier to entry that keeps this from being a commodity. I’m sure there are going to be a lot more people getting into this space because it is becoming more popular and more well-known.

For vetting the sponsor, he said also that you have to check how they are doing the property management and how they are doing the debt. Not only are those barriers to entry, but those are the questions you should be asking the sponsor to make sure that they have that handbook. One of the metrics that he looks at is the vacancy rate. In multifamily, where the vacancy rate is in the 90s, for him, that’s a red flag in RV parks.

If you see a park that has a vacancy rate that is 90% or 95%, that means you have to ask a question. As he said, if it’s not in Tampa, if it’s in Oklahoma, then you know that’s going to be tough to do. If it’s in somewhere else, it might be different. Those are extra things to look at and it is helpful as you are evaluating these deals to have a few metrics because right now, it’s such a new asset class that’s finding the right partner. As with everything, it is going to be the most important part, but it’s hard to evaluate this on an individual basis.

It also makes the fund model nice for an asset class like this so you are not just all tied into one park and worried about the analysis of that one park. The Law of Averages is to get the results from multiple parks. It’s a very interesting asset class. I’m going to keep an eye on it. That’s all we have for this time. We’ll see you next time in the left field.

 

Important Links

 

About Robert Preston

PILF 97 | Real Estate Investment OpportunityRobert Preston, Co-founder of Climb Capital, specializes in buying and selling RV Parks. He searches for and acquires value-add properties that produce a durable yield through the life of the investment.

While Robert got his start by flipping single family homes, this quickly escalated to recruiting investors and purchasing multifamily housing and then eventually Mobile Home Parks. In 2020, Robert and Jeremy Hans started Climb Capital and in 2022 – they have decided to focus on acquiring RV Parks! This spurred from a combination of a love for the RV Lifestyle and the significant upsides that owning and operating RV Parks bring. Climb Capital truly believes that this is the next great opportunity in Real Estate.

 


 

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