RV parks represent a growing and profitable segment of the CRE universe, but it’s hard to find information on investment opportunities.
Paul Moore, founder of Wellings Capital, joins Andy Hagans to discuss why RV parks are “a little bit undiscovered.”
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Episode Highlights
- An overview of the RV park industry, and the factors that are driving its incredible growth.
- Why the RV park industry in 2023 could be compared to the self storage industry in the 1990s era.
- The four major types of RV parks, and the unique aspects of each type.
- Why Paul believes the “growth story” of the RV industry is likely to continue far into the future.
Today’s Guest: Paul Moore, Wellings Capital
About The Alternative Investment Podcast
The Alternative Investment Podcast is a leading voice in the alternatives industry, covering private equity, venture capital, and real estate. Host Andy Hagans interviews asset managers, family offices, and industry thought leaders, as they discuss the most effective strategies to grow generational wealth.
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Show Transcript
Andy: Welcome to the show. I’m Andy Hagans. And today we’re talking about an exciting subsector in the world of real estate investing. Actually, we have almost 150 episodes, I think, of the show. I’ve never actually been able to drill deep into this asset class, so I’m very excited to talk about RV park investments today. And joining me is Paul Moore, who’s founder at Wellings Capital. Paul, welcome to the show.
Paul: Andy, it’s great to be here.
Andy: And, you know, we have a lot to talk about today, especially RV parks. But before we jump into the sub-sector, can we step back? Could you give us a little bit of your background and how you got into real estate investing?
Paul: Yeah, absolutely. I had an MBA, I was at Ford Motor Company, in your state, of Michigan. And ended up starting my own company with a partner. And we were very fortunate to be able to sell it to a public firm, 26 years ago. And I kind of semi-retired a little bit and started investing. And I thought, “Hey, I’m a full-time investor now,” thought that was pretty cool. And I didn’t realize I wasn’t at all. I was a full-time speculator, because I didn’t know the difference. And, you know, now, I see, you know, I mean, investing is when your principal is generally protected, and you’ve got a chance to make a return. And speculating is when your principal is not at all protected, and you’ve got a chance to make a return.
And I’m not saying either one’s wrong. But I think that we can all agree that investing, you know, prudently, is the better way to build a long-term wealth, you know, multi-generational wealth for your family. And so, it took me years to realize that. I got into residential real estate, flipped a bunch of houses, flipped a bunch of luxury, waterfront lots. Finally got into commercial real estate about 10 years later, which is about 14 years ago. And since then, started as a multifamily syndicator, wrote a book on multifamily investing, called “The Perfect Investment.” But about two years later, I realized, you know, it’s not really perfect if you have to overpay to get there. And that’s what we saw in multifamily. So we expanded it out into the fund model. And we invest in six different asset classes now, through with other sponsors.
Andy: Yeah, you know, Paul, you made a couple points right off the bat, one that I thought was interesting about the difference between investment and speculation. One thing that I’ve learned by covering the space, especially by speaking with so many family offices, it’s interesting to me that the higher up the wealth ladder…can I use that word, the wealth ladder…
Paul: Sure.
Andy: …that investors go, it seems to me that they often become more conservative, more weighted towards capital preservation, which is kind of surprising because…
Paul: I know.
Andy: …if you take the academic viewpoint, or, you know, what an economist might tell you, it would be, “Well a family office or a ultra-high-net-worth can afford to take more risk.” Right? They can actually have less money tied up in fixed income, you know, because they don’t… But what I have observed is just the opposite, is the family office is focused more on capital preservation, and that’s exactly what you were talking about, you know, investment versus speculation.
Paul: Yeah. I think what happens is, you know, with those years and with the pain, I mean, I had a podcast for four years, called “How to Lose Money.” And we talked about the pain of losses on the way to success, and I think those losses, they hurt. And, you know, Buffett, his first big investment was a big loss, in a gas station in 1953, I think it was. And, you know, those painful losses lead people to want to be more conservative and not wanna endure that pain again. And so, you know, like, over time, I’ve realized, you know, our main objective is Buffett’s first rule, don’t lose money. And after that comes income and appreciation and all that.
Andy: Yeah, the three… What is it? The three golden rules for a family office, don’t lose money, don’t lose money, and don’t lose money.
Paul: Exactly. Yep.
Andy: Well, I think this is interesting, Paul, that, you know, you’ve written books on multifamily. And self-storage. You know, I have my copy here, so…
Paul: Oh, yes.
Andy: Available, I think on Amazon.
Paul: Yes.
Andy: “Storing Up Profits.” And by the way, I have read it, so, you can see I have some folded pages here. But you say, you know, well, you have all these various books. You’ve been in, I think, five sectors that you mentioned, or five or six.
Paul: Yeah, we’re investing in six right now.
Andy: Okay, six. Would you say that you’re sector-agnostic or that you go where the opportunity is, versus just, “I have a favorite asset class and I’m gonna stick to it come hell or high water.” You know, you mentioned multifamily. And it’s like, “Well, I might love this asset class, but not at any price.” Right?
Paul: Right. Yeah, that’s right. I mean, I was a certified shiny object chaser for years. It comes along with speculation, right? And I realized after reading Gary Keller and Jay Papasan’s wonderful book, “The ONE Thing,” about 10 years ago, I’m like, “Hey, I have got to narrow my focus. You know, he who chases two rabbits catches neither.” And so, I was like, “Okay, this is it.” I told my wife, I promise I’m gonna stay multifamily the rest of my life and career. And after beating our head against the wall for four or five years, you know, it just didn’t make sense.
But, you know, another thing that didn’t make sense is for me to spread out into multiple asset classes. So we took a step back and said, “Wait a minute, 80/20 rule is fractal, which means the top 20 of the top 20% of the operators in a space would theoretically produce the top 80 of the top 80% of results.” And it’s true if you look at a graph. But we said, “Okay, what if we could go find and partner with those very best, the best we can find, operators, and invest with them?” And that’s what we decided to do.
And so, yeah, you’re right. We’re sector, class-agnostic, and we are gonna go where the opportunities are, and specifically where the opportunities with the best operators are. For example, we believed in RV parks for years, but we couldn’t find an operator, nationally, we couldn’t find a single operator that would do what we wanted, you know, to do, and we finally did. But that’s an example.
Andy: Well, and that’s huge, because, you know, all of these real estate assets, I mean, at least personally, the way I look at it, you have real estate… Real estate, in and of itself, is a little bit boring, right, at the end of the day, you know. I know not… A lot of people love real estate. I’m not trying to, you know, get any hate emails from the audience. But it’s really pretty boring. It’s land, it’s sticks, it’s bricks. But then when you have an operating business that leverages the real estate asset, to me, that’s a lot more interesting, right? A hospitality asset, a self-storage asset, an RV park, because now you have vertical integration, you can have a competitive edge, not only in acquiring an asset, potentially with a value-add, but then also with management, and so there’s just more…you know, you can conceivably stack competitive advantages, or stack value. And to me, that gets a lot more interesting.
So, I wanna turn now to RV parks, because… I think I agree with you in the sense that, you know, they should be more popular or more investable than they are, given their massive growth. But to your point, you know, the management hasn’t necessarily been available, or you had trouble, I guess, finding operators that you wanted to partner with. Is that why RV parks were “a little bit undiscovered,” to use your verbiage?
Paul: Yeah, I think so. You know, whatever we invest in, and, I mean, there’s one exception, but generally, we’re looking for asset types that have a lot of mom-and-pop operators, a lot of, you know, assets that are significantly under-managed. I mean, a mom-and-pop operators, often, they don’t have the desire, the knowledge, or the resources to really significantly upgrade and operate their asset while driving higher income, and of course, driving higher appreciation.
And so, acquiring these and paying these people very fair prices can be very profitable. So, we thought, you know, just like mobile home parks, RV parks, we thought would have those kind of characteristics. And we found out that there’s a couple, maybe three great operators in RV parks. One of them, Sam Zell’s company, Equity Lifestyles, God rest his soul. But there are a whole bunch of mom-and-pop operators out there.
And so, what’s happened is, I think a lot of these mom-and-pops have either owned these for, you know, years or decades, for cash or, you know, there’s just not a big syndication thing going in the RV park space, like there is in self-storage, mobile home parks, multifamily, especially. And so, we couldn’t find an operator that would buy from mom-and-pops, significantly upgrade and operate better, and then potentially sell to an institutional someday. We finally found one. But that’s why I think it’s a little bit undiscovered. There’s just not a lot out there. People don’t know where to invest.
Andy: It almost sounds to me like self-storage, maybe 20 years ago, or, I guess, I don’t know the exact year, but very fragmented…
Paul: It’s so…
Andy: Very fragmented. And lot of mom-and-pop, you know, cash businesses, without…
Paul: Exactly. We think it’s where self-storage was in the mid-’90s.
Andy: Okay. So, I wasn’t far off. I was about a decade off, but okay. So, wow, 30 years, though. That actually is a huge difference, right? So, this is way earlier on that curve of professionalization, and, you know, like, in self-storage, there are so many companies doing roll-ups, and then you have, you know, more REITs, publicly-traded REITs even, invest, so it’s just much more mature. RV parks, you know, obviously, less mature. But now, that industry is growing. Not talking necessarily about the investment side. The consumer side of RV parks, and of RVs, the growth during the pandemic, but probably even before, but then during the pandemic, according to your report, the rate of new 2020 campers grew by five times the record, pre-pandemic rate.
Paul: That’s right.
Andy: And then KOA, Kamp of America, I think their advance deposits went up 63% versus pre-pandemic. So, was that all the pandemic, or was it a long-term growth trend that would just intensify during.
Paul: Yeah, exactly right. Yeah. It’s a long-term growth trend. The RV ownership has risen 62% since 2001, to around 2021. And, you know, so, it was already, there’s a lot more people, millennials, boomers, all types of folks, who wanted to have an RV, or, you know, get access to an RV at least. And 26% of the RV campers in 2020 were first-time. And amazingly, while there’s about 10 million RVs in the U.S., about 8 million or 9 million or 10 million more people say they want to buy one in the next five years. And so, that’s not really gonna be possible with production maxing out at 600,000 or 700,000 a year. But there are some other ways to get RV usage to continue to grow. We’ll get into that later. But yeah, I think it’s like, it’s a trend that’s been out there for a while, and the pandemic… I mean, remember, three years ago this month, people were, like, just cowering in their homes. Yet there was still a massive number of people who hit the road with an RV. And so, some for the first time.
Andy: So, the pandemic was its own growth driver. You know, already these long-term underlying fundamentals driving the growth of the industry, then it intensified during the pandemic. And then, you’ve talked about then there were additional factors to, you know, boosters, we can call them, after the pandemic. So, let’s talk about these more recent, or these extra boosters that are driving growth.
Paul: Yeah. Well, you know, what’s crazy, Andy, is we just witnessed a first in world history. I mean, people say stuff like that, and they can’t prove, but, I mean, I think anybody can easily prove this, and that is the remote work revolution. I mean, people, you know, from 2010 to 2020, I think the number of people who could work part-time remotely was, it went up, like, four-fold. And then the pandemic hit, and then it went up just astronomically. And even today, you know, three years after the pandemic started, we’re seeing a massive increase in number of people who want to work remotely, who can work remotely, they’re demanding to work remotely. And, you know, the statistics on that are quite staggering, and I think a lot of your listeners would know that.
And so, people who want to work remotely, some of them saw people die, or they were afraid of dying during COVID. And they said, “You know, I really don’t know if I’m really valuing this really fast-paced lifestyle in, let’s say, Manhattan or Chicago or LA. I think I’d rather be in Utah, or Idaho, or Phoenix, or I’d rather at least vacation more. And they started looking at their family more, and they started looking at what they valued. And so, a lot of them made investments in RVs, or got access to RVs, and they started camping, and they realized, “Hey, I can go to these camps and I can work at a picnic table here, do my Zoom calls or phone calls. My kids can be playing putt-putt golf, or in the pond over…you know, swimming over here in the lake or the pool, enjoying themselves. And we can have a semi-vacation.”
I even know one guy, a CEO of a startup, who outfitted his RV to have an office mode, where desks would drop down on pulleys from the ceiling. And he outfitted it so he could work. And then he could pull those desks back up and throw his dirt bikes back in and go somewhere else. And he hit the road full-time. And so, it’s a pretty amazing factor that has really driven up RV usage. But another one that goes hand in hand with that is the Airbnb model, the sharing model. Most of your audience probably knows this, but RVs sit idle 49 to 50 weeks a year, on average.
Andy: Wow.
Paul: Well, those can be now turned into a rolling rental unit by putting them on Outdoorsy or RVshare, or other platforms, and they can actually be leased out. So, if I was scared to drive an RV, speaking from my wife, not me, you know, or if I didn’t have the insurance, or wondered how to get it, or what would happen if it breaks down, all that’s covered by these platforms. And, you know, they’ll even set them up for you. You can drive to a RV park, and if you have the arrangement set up, you know, you can have the RV sitting there waiting for you, already hooked up to water and sewer and all that stuff. And this is pretty amazing.
So, now, these… I mean, here’s an example. A friend of mine in Colorado, who’s a real estate investor, she bought an RV about a year ago. And she put it on a rental program, RVshare or Outdoorsy, or both, for six months in Colorado last year. And she paid $80,000 for the RV, and she cleared $40,000 in her first six months.
Andy: Wow.
Paul: And so it can be pretty profitable, and, but what this means for RV parks, think about it. Look at all the extra pressure. I mean, if this rolling rental unit, you know, that was in action for two weeks a year is now in action 26 weeks a year, in her case, six months, that’s gonna massively increase the demand for RV park sites. And it’s true. It’s happening. My RV owner next door here, he said it takes up to a year to get a site now, in parks that he wants to go to, which is kind of sad, but that’s obviously putting huge supply and demand pressure on these parks.
Andy: Oh, it’s great for the RV park owners, right, to be getting reservations a year in advance. Now, you know, we don’t need to, you know, do this exhaustively, but I think it’d be helpful for our listeners to understand that there’s different types of RV parks, right? I don’t have an RV, so, you know, some of this is new to me. And I’ve heard people get these mixed up with mobile home parks, and it’s, like, they’re very different, and depending on RVs, RV owners can tend to be a very high-income cohort. So, we have overnight RV parks, extended-stay, workforce, and destination, so those four different types of RV parks. Can you talk about those a little bit?
Paul: Yeah. So, an overnight park would be heavy on convenience. It might be right by a highway, you know, but light on amenities. It might be a place, you know, you would stop when you’re on the way somewhere, so a lot of those bookings for one night or two nights, you know, when people are traveling somewhere else. And there’s nothing wrong with that. That’s a great model.
Another one is the extended-stay park, and these are the kind that get mixed up with mobile home parks. You might… Like, at Smith Mountain Lake in my area, there are RV parks, you know, that the RVs have skirting, and they actually have decks. And even occasionally they might have a shed. And so, you know, these people are there to stay. They rent year in and year out. They pay a year…not a year. They pay three months in advance at the park that I’m aware of, like, for the whole year. So, they paid up by October of ’23 to rent the whole year ’24. And they’ve got, like, a seven-year waiting list, at least in this one case.
Andy: Wow.
Paul: A third type is workforce housing, and that’s not too popular. That’s, you know, basically, an RV park that would support, you know, pipeline or oil workers, say, in Williston, North Dakota, for example. And then a fourth type, the one I like best, is a destination park. Now, there’s two types of destination park, one that’s at a destination, like Branson, Missouri, or maybe Gatlinburg, or, you know, someplace like that. Or, and these overlap as well, the other type of destination park is actually an amusement park itself. Meaning that you can be there, and it could be a replacement for Disney World, which, actually, that’s one reason these are somewhat recession-resistant, I won’t say recession-proof for sure. But, you know, this park might have all kinds of amenities, like a waterpark, a swimming lake, pools, putt-putt golf, dog parks, trails, hay rides, face painting, gem mining, t-shirt painting, a drive-in theater, human foosball, and some even have Wibits.
Andy: Well, you know, it’s interesting that you mentioned that these very, let’s say, high-end destination RV parks, to me, the core appeal, I guess, as an investment thesis, and I’m not super knowledgeable about these, but, you know, I like hospitality. I like hospitality… To me, that’s an interesting niche, you know, but hospitality, the demands, the consumer demands, the client demands are so high, right? So, it’s a very demanding type of business. With some of these RV parks, the interesting thing to me, the rental rates appear to be pretty close to, like, a hotel or motel nightly room rate in some cases. But I would imagine that the client demand, I’m not saying they don’t exist. You know, of course, they exist, but I still have to imagine they’re less complex, they’re less demanding, they’re less onerous to fulfill, versus put in a hotel or motel in that same spot, and now all the headache that goes with operating that business.
Paul: You would think.
Andy: Is that fair, or am I misguided?
Paul: Yeah. I would have thought that too. But what I found out is, in the destination park that I stayed in, while we were doing due diligence on this operator, it was near Fort Worth, Texas, they have only a handful of employees year-round, but they have over 100 employees in the summer.
Andy: Wow.
Paul: And if you think about it, you know, remote location, 100 employees, that’s a pain. It’s gonna be like some of these national parks that have people, international students coming in for the summer. It’s quite a management headache for this destination park. Which may sound like a disadvantage, but for a company who knows how to do it, it’s a barrier to entry, to ward off competitors.
Andy: So, that’s where you come in, or your strategy comes in, right, which is, if you can figure out, then, that piece, you know, aligning with good management, then now you’re investing in, like, a vertically-integrated operation, right? It’s real estate, leveraged with good operations, and potentially from an investor standpoint, whether GP or LP, you know, you don’t necessarily have to take on the headache of the management. Is that essentially…?
Paul: Yeah. I mean, we, as a fund manager, and of course, for passive investors, it’s, you know, I mean, for us, we’re very involved, doing due diligence and getting to know them, and tracking their performance and holding them accountable. But, of course, for LP investors, there’s none of that, as you know.
Andy: So, in self-storage, I guess there’s a…and again, I’m not super knowledgeable about that sector, but you have publicly-traded REITs, that are vertically integrated, to, fairly substantially. Then you have other companies that are roll-up plays, that, again, are vertically integrated. Then you have some investors or fund managers who outsource the management to management companies that specialize in that. What’s the norm in RV park? You know, outside of the mom-and-pops, is the norm to be vertically-integrated, or are there, you know, management companies for hire like there would be in the self-storage world?
Paul: Yeah. So, there’s, like I said, a handful of REITs. I mean, there may be more that I don’t know of, but I only know of three that manage RV parks. Equity Lifestyles and Sun Communities do mobile home parks and RV parks. But most of the others are, you know, thousands of mom-and-pops. And of course, they get the benefit of being part of a franchise. They could be part of the Yogi Bear Jellystone franchise, or possibly KOA, so they get some benefit there. But they’re mostly vertically integrated, and they’re mostly, you know, mom-and-pop, or just a little above mom-and-pop.
Andy: Okay. So, let’s actually talk about REITs for a second here, you know, versus private funds. So, I would imagine…and I’m not asking about any specific fund or even specific REIT here, but do private funds generally yield more income than a publicly-traded REIT would in the space?
Paul: Yeah. You know, it’s hard to speak to that universally, like you’ve said, but, I mean, I took a look, when I put together my RV park special report, at the ups and downs, and the yield, from a couple of the REITs. And one REIT, specifically, was Equity Lifestyles, and the other one was Sun Communities. And first of all, I noticed they went up and down at the same time, even though they’re totally different businesses. I’m being a little sarcastic here. Because that’s what the market did. The problem with a publicly-traded REIT is they’re subject to the mood on Wall Street, a war in Europe, and the investor mood, and potentially a CEO scandal. And so, they go up and down independent of the actual business, which, you know, I don’t love that. I don’t wanna invest in that. But the thing that bothered me even more was realizing that the yield was only a few percent. I mean, like, the cash flow that an investor would get was…
Andy: 2.5%, 3% range or something, right? For a REIT?
Paul: Yeah. At least when I did this, in the fall of 2022, the dividend yield was 2.3% for each of those. So they’re throwing off 2.3% cash flow to investors. You know, I mean, I can’t speak for a whole bunch of them, but I would guess a good syndication or fund could throw off quite a bit more cash flow than that. In fact, ours is projected to do that. And then, appreciation as well, with some significant upside for investors who are, you know, hanging in there till a refinance or a sale of an asset.
Andy: Sure. And so, Paul, without getting into any specific offering, or specific fund, if an investor, you know, an LP, wants to allocate some cash to investing in RV parks, you know, what should they be looking for with a sponsor? Are there multiple sponsors out there? Are there any pitfalls to avoid? You know, I mean, what’s the lay of the land if I’m an LP and I want to invest, you know, in a more passive way?
Paul: Yeah. I would say either find a syndication that has a great track record, great team. I mean, we have a 28-point due diligence checklist we have before we’ll invest with a sponsor. And so, I mean, I can make that available to people. They could use it to do their own due diligence. Or, they could just go to Amazon or BiggerPockets and buy Brian Burke’s wonderful book, “The Hands-Off Investor.” It’s 350 pages of painfully detailed reading on how to vet an operator or a deal. And Brian’s with Praxis Capital, he’s in the multifamily world, but his book is just fantastic, gives all kinds of ideas on what to think about.
But, I mean, I’d be asking, how much skin they have in the game. How experienced is their team? How many full-cycle deals have they done? What type of debt do they use? Why do they use that type of debt? You know, how they underwrite? What happens if rents don’t increase and occupancy drops? I’d be asking all kinds of questions like that. What’s the net worth of the sponsor? You know, what do they do when things go wrong? You know, we like doing background checks and criminal checks and reference checks. We like asking investors who, you know, we happen to track down that invest with them, or even former employees who left, to ask them the truth about the company. And, I mean, honestly, that’s why we only invest in, you know, something like one or two out of every hundred operators that we examine. And we’ve examined many, many, many hundreds over the years, and only invested in 17 ever.
Andy: So, RV parks, really no different from any other sector within private real estate. You know, you have to do your due diligence, and, you know, that’s your role. Well, we’re almost out of time. But, you know, going back to the industry, you know, not talking about funds, per se, but just RV, you know, the growth that you talked about from work-at-home, and all of these factors that just more people are buying RVs, do you see that growth continuing? You know, I’m not asking for any specific numbers, but is this a generational, you know, decade or decades-long growth story, in your view?
Paul: You know, I am not sure. I’d like to say yes, and that’s what I actually believe in my heart. But I can make an argument, you know, that the pandemic was somewhat of a blip, and now if things will just kind of calm down and go back to somewhat normal… That’s not what I’m hearing from campers and the two RV owners on my street, but I could see it going either way. But here’s the point. Even if things just flatten out in RV camping, or any sector, self-storage, mobile home parks, if you can find an operator that has a really good penchant for finding significantly undervalued, particularly mom-and-pop owned and operated deals, and buying them and improving them, you could potentially make a good bit of cash flow and profit on that deal anyway.
So, for example, we invested with a self-storage operator recently, and he acquired a self-storage asset in a great location, that had a bunch of homeless people renting out units, a whole bunch of people who weren’t paying. The average rent was $60, for a 10 by 10 unit, and we’re talking in a nice area. But the market average right around them was $141.
Andy: Wow.
Paul: And so, almost 2.5X, $148, almost 2.5X over the price that they were renting for. So, even if self-storage is, let’s say it’s saturated, let’s say it’s overbuilt in so many places, if you can find deals like that, you could theoretically make money in many different markets. This is what Buffett talks about when he talks about, you know, as a value investor, finding intrinsic value in places where other people miss it.
Andy: Right. And that gives you a little bit of a moat. But, you know, I appreciate the honesty in saying you can argue it both ways. But I think I would take the bull case, in the sense that the pandemic was, whatever it was, a 12 or 18-month period of, you know, all these short-term changes, but it unlocked a lot of long-term changes in terms of lifestyles and expectations. So, you know, the work-from-home thing, or, you know, those platforms that are getting more usage out of existing RVs, you know, I could just see that those trends continuing in the future, and they don’t really appear to have reversed since the end of the pandemic. So, I’m comfortable going on record and saying I’m an RV bull, I’m an RV park bull. That being said, Paul, where can our audience of high-net-worth investors and family offices go to learn more about Wellings Capital and all of your offerings?
Paul: Yeah. They can go to Wellings, W-E-L-L-I-N-G-S, wellingscapital.com. And if they’d like to get a free special report on RV park investing, they can go to wellingscapital.com/resources. And they can contact me there as well.
Andy: And I’ll be sure to link to the website, as well as to the special report in our show notes, so all our visitors can always access those at wealthchannel.com and get access to that special report. Paul, thanks again for coming on the show and sharing your insights about RV parks today.
Paul: Thanks so much, Andy. It was an honor.
Andy: Absolutely. It was fun.
