Testing the market: RV Rentals
As a part of my education for my final year of high school, our home school group requires a senior year project called a capstone project. This project is meant to top off your education in a classroom setting and propel you forward into what you want to be in the future. I have decided to center my capstone project this year around investing and growing capital. This is because of three different reasons. For one, I want to be an entrepreneur in the future and this will provide me with a good foundation for that career. Secondly, I would like to help secure a good way for my family to get cashflow so we can support our family. Thirdly, I believe that it is very important for everyone to know how to invest what they have so it will grow and multiply, and centering my capstone around investing will give me the opportunity to show and tell that to people.
For this capstone project, I have chosen to start an RV rental business. There are some good reasons for this. First, my dad is a part owner of an RV park here in Waco, which gives me the ability to test the market for RV rentals by renting a pad from there. Second, we have a friend in Waco who is also renting out RVs and is doing very well with it, which makes it seem like there is a market for RV rentals. Third, it is a relatively low upfront investment cost to test the market, even if the venture does fail, which makes it less risky, especially since this is my first project. With these three benefits, this felt to myself and my dad, who is funding the whole thing, like a good first investment.
So, that is what my idea is, but what about actually putting it into existence? I have done quite a bit of the ground work already, thanks to help and guidance from my dad and a friend of ours named Josh Miller, who I mentioned earlier (he was the one who already has a successful RV rental business). Here's what has happened so far:
First of all, the idea for creating an RV rental business originally came from my dad as we talked about different investment ideas that would be good for me to do for my capstone, and I instantly felt good about it. He had just a month earlier bought into an RV park and resort, and so it seemed quite fitting for us to use that park as a way to test the market before we built something big. But, wisely, my dad didn't let me just dive right into this investment idea. Instead he had me create an investment proposal including 3 different ways to invest our money. And there were constraints: a budget of $200k, a forecasted return of at least 10% cash on cash rate, …. At the time and especially while I worked on putting it together, it felt kind of like a waste of time. I already had my idea and I just wanted to focus on that, not coming up with new ones. But, as I soon found out, that is not how a good investor and entrepreneur thinks. If a certain investment is not as exciting or fun as another investment, but it gives a bigger return, then you should go with the less fun one, unless your purpose in the investment is to have fun with it.
So, I created my 3-investment proposal, and I gave it to my dad. In this original proposal was a model for how each investment was going to work, along with the forecasted annual return and the CAP rate, or capitalization rate, which is basically the rate at which the investment will pay off the original capital invested. These were the investment ideas: RV rentals; cabins on one of our properties, and glamping sites on that same property. As it turned out, my proposal was pretty bad, not exactly bad for a first-time proposal, but definitely in need of much refinement.
There were several important things in my proposal which my dad showed me that I had left out. One, I didn’t include hardly any details about how I got the numbers that I estimated, only very general estimations of original purchase price, renting price, some of the expenses, and the forecasted occupancy. I learned that a proposal should be quite detailed, including all potential costs and a renting price proven and verified with the market. You need to be able to show how your business will work and what are the potential setbacks and challenges. With that I updated my proposal using the correct parameters, specifying every forecasted expense and upfront cost along with verifying the validity of the rental price I had come up with. I also learned about sensitive points in an investment, such as how much occupancy change will send the investment into the negative.
With this, I discovered that investing in an RV and renting it out in my dad’s RV park is not a worthwhile investment. In fact, it would take 70-75% occupancy just to break even. But, if we build our own pads on our land, then the investment would be a lot more worthwhile, especially since we don’t have the huge recurring cost of a pad rental. Of course, this is a much bigger upfront cost, therefore increasing the risk factor by several times. Therefore, I thought it actually might be worth investing in a RV just to test the market and see if building our own pads will be a good idea.
Now I have placed a deposit on a great second hand RV that Josh, who I mentioned earlier, helped me find and decide on. I am also currently in the process of trying to negotiate a price and secure a spot at my dad’s RV park for the RV.
After I purchase the RV and move it to the RV park, I then need to have it cleaned and stock it with dishes and linens and whatever else a renter would need to live in it. I also am going to need to buy another AC unit to go in there because as you would know if you live here in Texas, the summers here are not forgiving. After everything is set up, then I will list the RV as a rental on Airbnb and Furnished Finders to try and get a renter.
So, that is what I have been busy with for the past few months, as well as the next step I plan to take here in the near future. I will be doing biweekly updates on how things are faring with this project, so if any of this interests you, please stay tuned!
Thank you for reading, and have a great rest of your day,
- Hunter Hafiz