How do you value an RV storage facility?

One common question among investors considering investing in RV storage facilities is how do you value an RV Storage facility? Evaluating these types of investments isn’t much different than other similar investments. In this article, we will explore eleven effective evaluation methods specifically tailored to assess RV storage facilities.

Investing in RV storage facilities can be a lucrative opportunity, given the rising popularity of recreational vehicles. However, properly evaluating the potential of such investments requires a comprehensive analysis.

By understanding these methods, investors can make informed decisions and identify the most promising opportunities in the market. From comparative market analysis to cash-on-cash return and feasibility studies, we will delve into each approach, highlighting its relevance and practical application. Let’s dive into the essential evaluation methods that will guide you towards successful investments in the world of RV storage facilities.

Three Most Common Methods for Evaluating Real Estate Businesses (i.e. RV Storage)

Here are the three most common methods for evaluating real estate based businesses such as RV storage facilities.

1. Comparative Market Analysis for RV Storage Facilities: A comparative market analysis specifically tailored to RV storage facilities involves assessing similar properties in the local market area that have recently sold or are currently listed. This approach helps determine the value of the RV storage facility based on recent sales prices, rental rates, occupancy rates, and market trends specific to RV storage. One challenge with this method is that RV storage sales don’t have much for volume. Therefore, it is difficult to obtain sufficient sales data for a given market.
2. Income approach (Cap Rate):  The cap rate is a valuable metric for evaluating the income potential of RV storage facilities. By dividing the property’s net operating income (NOI) by its purchase price, investors can determine the cap rate specific to the RV storage industry. This helps gauge the potential return on investment and compare different RV storage opportunities. Again, the challenge is that without sufficient data points, comparing data points for cap rates is challenging.
3. Replacement Cost Analysis:  This approach involves estimating the cost of replacing the facility, taking into account factors such as land value, construction costs specific to RV storage, and any necessary improvements or upgrades. By considering the potential expenses involved in constructing a similar facility from scratch, investors can better understand the value of the existing RV storage property and its potential for long-term returns. The challenge with this approach when evaluating RV storage facilities is that replacing the exact location of a given facility is practically impossible. Additionally, some RV storage facilities have been grandfathered in and can’t be replaced, even in the same location.

In real estate, some appraisers also look at metrics such as price per square feet. However, when evaluating RV storage facilities, this metric gets a bit confusing since a facility can be looked at in terms of rentable square feet or gross square feet. Furthermore, this metric looks at cost only. A proper evaluation should also consider income.

Other Metrics and Tools for Evaluating RV Storage Facilities

• Cash-on-Cash Return for RV Storage Facilities: The cash-on-cash return is a relevant measure for assessing the profitability of an RV storage facility. By calculating the annual cash flow generated by the facility relative to the initial cash investment, investors can understand the income potential and return on investment specifically for RV storage. This is by far my favorite method for assessing RV storage facilities and other real estate based businesses. We’ll dig in deeper on why on a separate article.
• Gross Rent Multiplier (GRM) for RV Storage Facilities: The gross rent multiplier can be adapted to evaluate the value of RV storage facilities. It involves dividing the purchase price of the facility by its gross rental income. This approach provides a quick and straightforward way to compare RV storage properties and estimate their value based on rental income. Unfortunately, this only looks at the income side of the equation. Therefore, it doesn’t tell us what the value of a given facility is.
• Return on Investment (ROI) for RV Storage Facilities: Return on investment is a comprehensive measure that considers the total return generated by an RV storage facility, encompassing both income and potential appreciation. By analyzing cash flow, equity buildup, and potential value appreciation, investors can assess the overall profitability of the investment.
• Net Present Value (NPV) for RV Storage Facilities: Net present value can be utilized to evaluate the financial viability of an RV storage facility. By discounting future cash flows, including rental income and potential resale proceeds, to their present value, investors can determine if the investment is financially sound.
• Internal Rate of Return (IRR) for RV Storage Facilities: The internal rate of return is a metric that calculates the annualized rate of return an RV storage facility is expected to generate over its holding period. This analysis considers the timing and magnitude of cash flows, providing insights into the investment’s profitability.
• Market Rental Analysis for RV Storage Facilities: Conducting a market rental analysis is crucial when evaluating the income potential of an RV storage facility. This process involves researching and analyzing rental rates for similar RV storage facilities in the local market, considering factors such as location, amenities, and demand from RV owners.
• Feasibility Study for RV Storage Facilities: A feasibility study tailored to RV storage facilities assesses the viability of the investment project. It considers factors such as market demand for RV storage, competition, construction costs, operational expenses, potential revenue, and associated risks. This study helps determine if investing in an RV storage facility aligns with the investor’s goals and if it is financially feasible.

Conclusion – Evaluating RV Storage

Investing in RV storage facilities demands a systematic approach to ensure informed decision-making and maximize potential returns. By utilizing the ten evaluation methods discussed in this article, investors can comprehensively analyze the income potential, market value, and profitability of RV storage facility investments. Each method provides unique insights, such as market trends, cash flow analysis, and financial feasibility, enabling investors to gauge the viability of their investments. By combining these evaluation methods and conducting thorough due diligence, investors can confidently navigate the RV storage facility market, identifying valuable opportunities that align with their investment objectives. Remember, a well-informed evaluation paves the way for successful investments in the promising realm of RV storage facilities.