Like all sectors of real estate, every RV park deal eventually ends up with an appraisal being performed. The verdict of that value decision can either make or destroy your deal’s ability to get financing – a bad appraisal is more than most buyers can overcome. So how do RV park appraisals really work? What attributes impact that value?
Historical income
RV park appraisers typically use a fairly simple methodology. They look at the last several years of net income, look at the trend, often average them together, and then apply a cap rate. At the end of the day, the true value that the appraisal will bring forth is based on the net income. If the seller has a net income of $50,000 per year, the value will not come in at $2 million. So all parties need to understand that the basic underpinnings of value boils down to one key item: the current net income.
Location
All of real estate is based on location, location, location, so RV parks are obviously no different. They key location that appraisers like are “destination” RV parks, and not “overnighter”. And, of course, then you have to overlay the additional macro geography of what part of the country the RV park is in and how desirable that destination is. A weak location will yield a weak valuation.
Property condition
Just like anyone would, the condition of the RV park has a huge impact on the appraiser impression of the entire business model. A well-manicured property will result in a positive attitude and sometimes a 1-point lower cap rate. If you are buying an RV park that shows poorly, it’s safe to assume that you are going to be looking at a lower value than it might have in a more slightly condition.
Selling the narrative
Sometimes the buyer has a material impact on the appraisal by providing their narrative on what they will do to fix the property. In this case, how well you sell that narrative to the appraiser will spell victory of defeat. If the mom and pop owner are not even on the internet and your plan is to do so immediately upon closing to spur greater revenue you may get a higher appraised value simply on the positive reliance of the appraiser on your estimates.
Steering by the lender
Sometimes the RV park appraisal can also be impacted by the input from the lender. Not only do some lenders give the appraiser a rough idea of what the valuation needs to be to hit their target, but also their enthusiasm (or lack thereof) to make the loan. Some lenders use the appraisal virtually as a tool to get out of a loan they had lost confidence in – it gives them an easy out.
Conclusion
Most RV park appraisals turn out just fine. Others are a death sentence to your deal. Some of the ending you can influence through subtle means, and other elements are beyond your control. These tips can help you know what power you have to create a positive outcome, as well as to explain what may of happened if you fail.