During these unprecedented times there is one commercial niche property type that is performing beautifully. Discover why now is the perfect time to invest in RV and Boat Storage as well as get an inside look at a recent RV Storage case study from a commercial investor.
Benefits of RV and Boat Storage
1. High Profit Margins
RV Storage has higher profit margins than single-family rentals because it requires less maintenance. When a tenant moves out of a residential unit you need to clean the carpet, paint walls, clean and make repairs, and maybe change an appliance or two. All in preparation for the next tenant. With an RV storage facility, all you need to do is sweep and spray for bugs to prepare the unit for the next tenant.
Another reason the profit margins are higher for RV Storage is you will never have a zero occupancy rate. When a tenant moves out of a single-family home the occupancy rate is zero until a new tenant moves in. With an RV Storage facility, you have hundreds of units, so even if ten tenants move out, you’re still making money.
2. Niche Market
Apartment investing is highly competitive and it can be difficult to break into the market as a beginner. However, because RV storage is a niche market there isn’t as much competition. Moreover, RV storage facilities are in high demand because during the last few years RV sales have hit an all time high. All those new owners need a place to store their recreational vehicles.
3. Stable Income
RV Storage facilities have a more stable income than self-storage because the recreational vehicles being stored are of such high value. No one will be abandoning a unit full of expensive recreational vehicles and boats. There won’t be any storage wars over abandoned storage units.
4. Automation
In any commercial real estate investment, you need to do marketing, maintenance, and management. What’s great is you can completely automate all three using a software designed specifically for RV Storage facilities.
RV Storage Case Study
This investor used his first commercial deal, a 90-unit apartment building to fund his second commercial investment. For his second deal he wanted to diversify because as COVID demonstrated, diversifying can help you get through a crisis.
After researching different commercial niches, he settled on RV and Boat Storage. He saw that it produces good revenue, has a strong demand, and tenant relations and building maintenance are simpler and less expensive than with multifamily.
Property: 185-unit RV Storage facility for $2.345 million, increased to 194 units by utilizing unused garage space and creating some outdoor spots.
Financing: The bank financed 85% of the deal with an SBA-guaranteed, non-recourse loan with a floating interest rate. He paid the 15% down payment from the savings his first property had accumulated and a cash-out refi.
It important to note that the down payment came from his first deal. His exit strategy was to do a cash out refi, pull the money out and buy another property. It’s crucial that you do well on your first deal so that you can pull money out to invest in other properties and grow your portfolio
Bonus: The bank lowered the interest rates due to COVID and his P&I went from almost $13,000 a month down to $10,000. He also took advantage of Coronavirus benefits. He was given a six-month grant towards the mortgage which he doesn’t have to pay back, saving him $60,000. He then used those savings for rehab, front end costs, a feasibility study and engineering a site plan for expansion.
Simplifying Property Management: To simplify and automate his RV and boat storage, the investor implemented an advanced software called Easy Storage. The tenants love it because they can accesss their own account, pay automatically and even buy insurance. He has found that managing tenant relations is quite simple and any minor issues have been resolved quickly and efficiently.
Property Management Challenges: One challenge as new management has been raising the rents. The previous owner hadn’t raised them for some time, and they were way below market. When he increased the rents across the board 10%, it didn’t negatively impact the vacancy rate. In fact, because of the high demand for RV and boat storage, he has an extensive waiting list. The investor is also implementing a 5% increase in rent when there is a turnover in a unit to get the rates to market value.
Cashflow: After completing any necessary maintenance and raising the rents, the cashflow increased from $2,300 net to almost $5,000 a month.
Upside Potential
Only five of the nine and half acres are being utilized so there is potential for expansion. The investor had a feasibility study done for his performa. The first part of the feasibility study looked at the facility and portion of that market. The second part examined demand. It then combined the percentage of the market with the demand for spaces giving the number of units for the expansion. The study showed he could immediately put in 105 enclosed pull-through units of various sizes and have them rented before construction was done.
Cost of Additional Spaces: Working with an engineer, the investor intends to add 105 spaces in eight buildings at a cost of $1.7 million. After producing a feasibility study that showed that the expansion can fit the market, the bank that financed the original storage facility loan agreed to finance the entire expansion project.
Additional cashflow from expansion: $283,000 a year.
NOI: $184,000 divide by an 8.5 cap rate
Forced Equity: That expansion will add $2.1 million of forced equity to the deal once expansion is complete.
Although his additional financing for expansion is increasing his mortgage payment, he’s netting $184,000 and the property value has increased by $2.1 million.
Growing a Business: Increasing in Wealth and Cashflow
Commercial real estate investing has the advantage over every other type of investment to build wealth.
- It out performs any retirement investment and provides a better retirement and wealth for future generations.
- It is the most protected tax entity by the federal government.
- As you builds the business, you are employing people to work at your facilities, having a positive impact on the community.
