March 5, 2021
Two of the most popular assets out in the market to invest in are RV Parks and Self Storage with the latter having been popular for years and the former growing in popularity quickly. Lets take a look at the differences between these two assets.
Self Storage properties traditionally offer their customers or tenants month to month terms with some longer durations for the larger RV & Boat Storage facilities. Tenants can give a 10-30 day move out notice and vacate. Properties that have focused on tenant retention can sometimes see tenants who have stayed for years, thus reducing turnover costs and advertising.
RV Parks are quickly becoming extended stay properties where tenants may rent on a monthly basis as opposed to the daily or weekly rate options. If you are purchasing in a destination area, more than likely the tenants will be coming and going more frequently where they may only stay for a week or two at the most. It is important to pay attention to the rent roll and rent roll history reports to determine what type of tenants you may be dealing with at the Self Storage or RV Park you are looking to invest in.
RV Parks are going to be much more management intensive. New arrivals will need to be give tours of the facility. The common areas (bathrooms, clubhouse, pool, etc.) will need to be cleaned and stocked on a regular basis. The vacant spaces will need to be cleaned prior to a new arrival. Employee expense will be a major line item on your P&L.
With advancements in management software and technology, Self Storage properties under 40,000 NRSF or less than 220 units are increasingly becoming remotely managed. Facilities larger than this will begin to require some part-time to full-time management to be present. However, even that may one day not be necessary.
Self Storage has seen an explosion in popularity over the last decade. Investors all of the United States have flocked to this asset because of its potential returns and relative ease of management. However, demand for the product has caused supply of available properties to decrease resulting in lower return on investment. Also, many markets are reaching points of saturation causing investor returns to sour. RV Parks are experiencing increased popularity, however not nearly to the extent that Self Storage has seen. Thus, many investors are realizing better return on investment with RV Parks than storage.
As mentioned above, demand has caused the Self Storage cap rates to become more and more compressed. Class A Self Storage assets often times trade for 5-6% cap rates in primary market areas. Even Class C/D or Value Add deals can see cap rates in the 7-9% range. RV Parks on the other hand are seeing much more attractive returns for existing property acquisitions with cap rates ranging from 7-10%. Class A RV Park acquisitions can still be found for 7-8%.
Self Storage financing is more prevalent and easier to obtain than RV Park. Self Storage financing can see rates as low as 3%, thus allowing for the lower cap rates/returns. RV Parks may see interest rates up to 2 points higher with shorter amortization periods of 20 years instead of 25-30 years for Self Storage deals.
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