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Caravan Parks Made Easy.
RESORTBROKERS.COM.AU
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CARAVAN PARKS A caravan or campervan is built every five minutes during the working week. It’s the fastest growing vehicle category in Australia. Total nights spent in caravan parks are increasing year-on-year, heading rapidly towards the 60 million nights per year mark.
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FORECASTS PREDICT THAT REVENUE FOR OPERATORS WILL CONTINUE TO INCREASE
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This informative guide is designed to provide anyone considering an investment in a caravan park with a sound overview of the industry. It covers the various types of caravan parks you can buy, the investment and operational options available, and what caravan parks can offer you. You’ll also find helpful tips on what to look out for as you explore opportunities in this thriving industry.
CARAVAN PARK GROWTH INDUSTRY The caravanning and camping industry in Australia is thriving. Statistics continue to highlight its growing popularity among Australians and internationals alike.
The affordability and growing sophistication of caravans and motorhomes and the growing prevalence of high-quality park facilities are also appealing to younger travellers and families, fuelling demand from emerging markets.
The industry is also evolving, with different types of parks catering for various levels of short stays and longterm occupation – tourists, permanents, and a mix of both. Changing demographics, with growth in both the active senior and family market segments, present commercial caravan park operators with significant opportunities.
Meanwhile, the permanent sector has seen the growth of Manufactured Housing Estates (MHEs), which are more akin to gated lifestyle communities. These are playing a vital role in addressing affordable housing demand and supply.
They will be key beneficiaries of current and future domestic tourism trends. Forecasts predict revenue for operators continuing to increase, especially as the aging population brings a new wave of grey nomads. – 5 –
SO, WHAT ARE CARAVAN PARKS? Sure, we all know caravan parks provide space and facilities for caravans to be parked and used for holidays or in some cases, as permanent homes. But the industry is evolving, and there are now different types of parks catering for various levels of short-term stays and long-term occupation. 1. TOURIST OR HOLIDAY PARK
Caters exclusively to the short-term tourist market, providing a range of facilities which may include powered and unpowered sites, camp sites, and cabins or motel-style rooms. An increasing range of facilities is also being offered: ensuite and drive-through sites, ‘glamping’ pavilions, water playgrounds and cafes. 2. TOURIST AND MIXED-USE PARK
Caters to the tourist market as above, but also offers some sites and facilities designated for permanent occupation. Permanent residents may own their own caravan or manufactured home, paying rent for the site, or occupy park-owned vans or cabins. 3. TOURIST PARK WITH ‘ANNUALS’
Predominantly caters for regular holidaymakers who keep their own caravans and hard annexes or cabins on site. They pay an annual fee for the use of their site, which they may occupy for up to three or four months of the year, depending on the state, but they cannot stay permanently.
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4. PERMANENT CARAVAN PARK
Usually comprised of a mix of park-owned and privately-owned caravans and manufactured homes, all for long-term residential use. 5. MANUFACTURED HOUSING ESTATE (MHE)
More akin to a gated residential estate where all residents own their own manufactured home, paying a weekly site rental plus separately metered power and water costs.
1 IN 13 HOUSEHOLDS IN AUSTRALIA HAVE A RECREATIONAL VEHICLE (RV) REGISTERED.
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HOW ARE CARAVAN PARKS SOLD? Caravan parks are offered for sale in one of three ways – as a freehold going concern to an owner-operator, as a leasehold business, or as a passive commercial property investment.
FREEHOLD LAND & BUILDINGS
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COMMERCIAL BUSINESS
FREEHOLD GOING CONCERN
This is perhaps best described as the ‘traditional’ model – where one party is both the owner of the freehold land and buildings and the operator of the commercial caravan park business. The owner-operator is responsible for all aspects of the park, from property maintenance and cabin / room refurbishment to generating bookings and taking care of guests. No rent is payable, so the owner receives all profits after operating costs are covered. There are advantages to owning and controlling the park business as well as the freehold land and buildings. Your park is both an incomegenerating enterprise and a substantial commercial property asset. It is a home and a business, providing security of employment and investment – the best of both worlds. Both components – the accommodation with associated services and the commercial property asset – present opportunities for growth. The land and buildings form a real estate asset that, independently of the business, may rise in value. And the owner-operator is able to add value. Time and money invested in your property on improvements will enhance its value. – 8 –
The value of the property also relates to how well the business is run. So, in this respect, the owner-operator is in control of their own destiny. Rather than relying on a lessee to protect the value of your asset through good business management, you are able to market and build the business yourself for maximum profit and growth. Owner-operators also have flexibility. If you no longer want to run the business, you can retain the freehold land and buildings while creating and selling a long-term, income-earning lease. For some, buying a caravan park as a freehold going concern, building the business and then on-selling the lease at a higher value is a worthwhile growth strategy.
COMMERCIAL BUSINESS
LEASEHOLD
In this case, you buy a long-term lease to occupy the land and buildings of the caravan park and operate the business. A park lease offers you the opportunity to buy a caravan park business for a much lower financial outlay than is required for freehold purchase. The business is yours to market, manage and build for maximum profit and growth. The lease value is made up of three components –purchase of the business (the lease term), chattels (generally all portable furniture, décor and gear needed to run the business), and goodwill (the value attached to intangible assets like reputation, regular client list, etc).
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Leases are sold on the return (net profit of the business after add backs, capitalised at an agreed rate). The return percentage depends on factors including the location and condition of the property. The industry standard for most new park leases is a term of 30 years. This is made up of a fixed term plus options (e.g. 10 years + 4 x 5-year options). Lessees, who pay their landlord an annual rental for usage of the land and buildings, often live on site and undertake the day-to-day management of the park. You are free to run the property as you see fit, as long as you pay the agreed rent and maintain the property in line with the lease agreement. The lessee’s objective is to grow occupancy and tariffs, thus increasing the net profit and, ultimately, the value of the business. You are responsible for paying all operating costs, such as wages, rates and outgoings, and for the maintenance and replacement of all chattels necessary to sustain the goodwill of the business. You are also responsible for day-to-day repairs and upkeep, including painting and signage. The landlord is often responsible for structural repairs and replacement of fixed items and equipment such as toilet and shower systems, built-ins, hot water cylinders, and any other structural items. N.B. No two leases are the same. The specifics outlined above depend on the lease agreement.
12.6 MILLION OVERNIGHT CARAVAN AND CAMPING TRIPS RECORDED IN AUSTRALIA
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FREEHOLD LAND & BUILDINGS
FREEHOLD PASSIVE INVESTMENT
The success of the leasehold caravan park model has made valuable freehold park properties available to passive commercial property investors. As ‘landlord’, they own the land and buildings but they have nothing to do with the business operation. The landlord receives an annual rental income from the lessee. Depending on the terms of the lease agreement, this rental figure generally increases annually in line with CPI. Some leases include a rental review clause.* While general repairs and maintenance, rates and insurances are the responsibility of the park operator, the landlord is responsible for all structural repairs and is expected to maintain the standard of the property for the duration of the lease. Caravan park properties are widely regarded as secure and lucrative passive investment opportunities because they are usually located in prime highway, coastal and town locations, and have secure, long-term leases offering attractive returns. Compare this with a commercial or industrial building where, if your tenant defaults, all you can do is put a “For Lease” sign on the building until you can find another tenant. In the case of caravan park investments, as there is an inherent value in a park lease, you have a tenant who has paid a significant amount of money and is keen to be there. And your tenant will do a much better job of maintaining your property because it is their home and their livelihood. N.B. Practices can vary slighting in different states across Australia.
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$19 BILLION+
ESTIMATED TOTAL VALUE OF THE CARAVANNING AND CAMPING INDUSTRY TO THE AUSTRALIAN ECONOMY
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HOW MUCH CAN I SPEND? So, the prospect of buying a caravan park sounds good? What next? The starting point for every prospective park buyer should be to work out exactly what you can afford to spend, and your borrowing capacity. The easiest way to do this is to speak with an industry expert – either a specialist broker (that’s us!) or experienced finance professional / bank. Consider the value of your assets. As well as cash reserves, they might include your home, shares, superannuation and other investments. Depending on your financial position, you might consider selling some of these assets to finance your caravan park purchase. Banks look rather favorably on the caravan park industry because of the investment security it provides, so lending ratios are relatively generous. Banks will usually lend at least 50% of the total cost of a leasehold caravan park. For example, to purchase a lease for $1,000,000, you would need to provide $500,000 and the bank provides $500,000. For freehold (passive) investments, banks will lend up to 60% of the purchase price. So, if you buy an investment for $1,000,000, you will need to have $400,000 available. In the case of freehold going concerns, because the bank may have the security of the land, buildings and business, they are prepared to lend up to 60-65% of the purchase price. This means, if you were to buy a freehold going concern park for $1,000,000, you would be required to contribute $350,000 - $400,000 and the bank would tip in the balance $600,000 - $650,000. N.B. The above is a guide only and bank lending depend on your current financial situation
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BANKS LOOK FAVOURABLY ON THE CARAVAN PARK INDUSTRY BECAUSE OF THE INVESTMENT SECURITY IT PROVIDES. One of the most critical areas to look at is loan serviceability. Banks usually want to ensure you can pay off your loan over 10 years, even if the term of the loan is longer. And although they may be satisfied you have ample security, they’ll also want to ensure you can generate sufficient income to repay the loan and live comfortably. A great advantage of caravan park investment is that the property can be both home and business, which means you can enjoy considerable saving on your cost of living. If you live on site, utilities and many other costs are put through the park as business expenses.
+ COSTS OF PURCHASE You will also need to budget for the anticipated costs of purchase – to cover such things as loan establishment fees, legal costs, income verification and stamp duty. As a rule of thumb, we advise you allow an extra 5 – 10% of the park’s total price, in addition to your equity portion of the purchase price.
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WHAT IS THE PROCESS TO BUY A CARAVAN PARK? The process involved when buying a caravan park is well established and ensures a maximum degree of security over your purchase. HEADS OF AGREEMENT
When you have inspected and found your perfect property, we ask you to make an offer via a ‘Heads of Agreement’ form. This is a nonlegally-binding document that serves to formalise your offer. The form is presented to the seller, who may accept, reject or counter-offer. The process is repeated until a price is agreed (or not, as the case may be). CONTRACTS
Once a price is agreed, the vendor’s solicitor will issue contracts. Both parties sign on the dotted line and the property is now ‘under contract’. It usually takes a couple of weeks to be prepared and agreed by both parties. DUE DILIGENCE
Due diligence begins either before or after signing the contract, depending on applicable state or territory practices. Due diligence is a comprehensive appraisal to verify the park’s assets and liabilities and evaluate its commercial potential. FINANCIAL SCRUTINY
This is the first step in the due diligence process. Your appointed accountant will review the property and financial information provided by the vendor. This is to ensure the income isn’t being overstated. Your accountant will provide a report detailing their findings. If discrepancies are found, a price adjustment may be warranted.
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LEGAL
The next step is for your appointed solicitor to verify the business is legally sound. This includes examining the lease document and conducting searches. VALUATION
Banks will often require an independent valuation, carried out by a properly qualified and licensed valuer. FINANCE
The final step is for your chosen financier to provide a stamp of approval for your loan. Once this has been granted, the contract either becomes unconditional or an unconditional contract is signed. LANDLORD CONSENT
Landlord consent to assign the lease is an important piece of the puzzle and, for this, you may need to produce asset and liability statement and personal and work references. Your bank will also require an entry deed to be approved by the landlord before settlement. SETTLEMENT
Settlement of your purchase can happen within a week or two of finance being approved, depending on individual circumstances. Often the settlement date is pre-agreed between vendor and purchaser.
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WHO CAN HELP ME TO BUY A CARAVAN PARK? A caravan park is a unique and potentially complex type of business / property. We cannot stress enough how important it is to seek the professional advice of specialists who have direct knowledge and experience of the park sector. Aside from your agent, who will be your vital linchpin through every step, there are some key people whose help will ensure you buy the right park and that the process unfolds as smoothly as possible. They may not be your regular family advisors, because it is vital they are professionals who understand the finer points of the caravan park industry. The security and reassurance gained by dealing with proven experts is invaluable.
FINANCE
If you are dealing directly with a bank, make sure the representative looking after your business specialises in caravan parks. Ask how many park transactions they have handled previously. And remember, it is wise to obtain a few finance quotes to compare. We highly recommend you consult a specialist finance broker. Using a broker won’t cost you extra. And, because lenders expect brokers to shop around for the best deal, they usually make an effort to ‘sharpen their pencils’. A good broker will also know which lenders are most suited to the type of caravan park you want to buy.
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ACCOUNTANT
Leasehold and freehold going concern buyers will need an accountant to check the books, (i.e. verify the Profit & Loss Statement). Again, it’s critical you engage a specialist accountant with a deep knowledge of the industry. This is a big investment for you. The value of the park is derived from the profit it makes. So you must be 100% confident the business is making the money it claims, and that the income is sustainable. Your lender will require this security as well. A specialist accountant will have verified many caravan park P&Ls during their career. They know what to look for and what rings alarm bells. They understand where operating costs and wages should be in line with industry averages, and can provide sound advice in the event of any discrepancies. Before going to contract, also ask your accountant about establishing the appropriate entities to suit your needs. The structure you set up to buy the business can have significant tax implications; an industry expert knows how to maximise benefits.
SOLICITOR
Buying a caravan park, especially a leasehold park, is very different to other commercial real estate transactions. Only a specialist lawyer will truly understand the complexities. You need an expert legal eye overseeing the process, watching your back, helping you to understand any issue that may arise. It’s your lawyer’s job to scrutinise and ensure the validity of agreements that provide the security to the business you’re buying.
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BROKER
Your agent will play the most integral role in helping you find the right caravan park. Make sure the broker you deal with is suitably experienced. Find out how long they’ve been in business, how many caravan park / accommodation business sales they’ve successfully negotiated and, where possible, speak to previous clients. An experienced caravan park broker will understand details a general real estate agent or business broker may not – the structure and implications of the lease agreement, its term, the duties and responsibilities of the operator (lessee) and landlord (lessor), entitlements for landlord inspections, appropriate rent levels and annual increases, how to assess trading figures and returns, and how these relate to market value. The broker is the plays an integral part in any transaction as they are the only person who can talk to all parties.
THE SECURITY & REASSURANCE YOU WILL GAIN BY DEALING WITH PROVEN EXPERTS IS INVALUABLE
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BEING A SUCCESSFUL ‘PARKY’ The key to being a great ‘parky’ is to really enjoy working with people and to always strive to give your guests a great experience. Successful operators build strong relationships with guests so they become repeat clientele and happily recommend your park to others. You don’t need to be experienced in the caravan park industry or the wider tourism sector to be successful in the park business. And you don’t need any particular qualifications. Some of the best operators we’ve known came to the business from entirely unrelated backgrounds. Caravan parks usually cover a bit of ground. So enjoying the great outdoors is a big plus. Experience as a tradesperson or handyman would certainly be helpful, saving you money on upkeep, and ensuring you always present the property in tip-top condition. An interest or background in marketing would be an advantage when working to keep your park in the limelight. And having business or bookkeeping skills will help you keep track of costs and present an impressive set of books when the time comes to sell. However, more important than anything is having a friendly face behind reception. You must offer guests a warm welcome, be willing to meet the needs of weary travellers, and provide quality, personalised service that makes their stay one to remember and repeat.
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WHERE TO NOW? If you’re considering a future in the caravan park industry, you can be confident ResortBrokers is very well placed to point you in the right direction. We will be the vital linchpin you need, not only to help you find the right park for you, but to expertly guide the process, ensuring your move is achieved smoothly and successfully. Because ResortBrokers has been a specialist in the accommodation sector since 1985, you can be assured of our experience. In fact, we were the first commercial agency in Australia to focus exclusively on accommodation business and property sales. So, when it comes to caravan parks, and other accommodation properties including motels, management rights, hotels and serviced apartments, you can have absolute confidence we are the expert leaders in our field. And, because we are truly national, with an integrated network of specialist brokers active across all states and territories, you will have access to more properties across the broadest market. Finally, our long experience means we know all the best industry professionals you’ll need to manage and safeguard your purchase. RESORTBROKERS – RIGHT PROPERTY, RIGHT PEOPLE, RIGHT AWAY.
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GLOSSARY OF TERMS PROPERTY DESCRIPTIONS
Amenities block: Communal shower and toilet facilities.
Parky: Owner / operator of a caravan park.
Annuals : Clients who pay annual rent for a site on which they keep their own caravan or cabin.
Permanent park: Caters for permanent, long-term residents (not tourists). Powered site: Caravan parking site with electricity connection point.
Drive-through site: Sites allowing you to drive your car and van in / through, without having to reverse.
Short-term sites: Caravan site used only for holiday occupation
Dump points: Places where van owners can dispose of toilet waste.
Sullage point: Point to which the caravan sink and shower is connected for waste water disposal.
Ensuite cabins: Cabins with private bathroom and toilet.
Tourist / holiday park: Caters predominantly for the tourist / holiday market.
Ensuite site: Caravan site with individual shower and toilet facilities.
Unpowered site: Caravan site with no electricity connection point.
Lodges / villas: Cabins Long term sites: Caravan sites which may be permanently occupied. MHP / MHE: Manufacture Home Park / Estate.
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BUSINESS TERMINOLOGY
Add backs: Any expenses in the P&L that don’t apply to an incoming purchaser. For example, if the vendor has a mortgage, their interest payments would be considered an ‘add back’, as they would not be a cost the incoming purchaser will incur to run the business. Adjusted net profit: The net profit after add backs. Chattels: The items that do not form part of the structure. They generally include all furniture, soft furnishings and décor items, i.e. portable items required to run the business. A inventory of all chattles included in the sale should be attached to the contracts. Lessee (also referred to as the tenant): Owns the leasehold motel business and pays annual rental to the lessor. Lessor: Also known as the ‘passive investor’ or ‘landlord’, the lessor owns the land and buildings and receives rent from the lessee.
Options: Most lease agreements are made up of an initial fixed term followed by a number of ‘options’. These are provisions entitling the lessee to renew their lease at stated intervals, provided they have complied with all their obligations under the lease. Rent : The sum stated in the lease document to be paid (often monthly in advance) by the lessee to the landlord for the use of the land and buildings. Return (also referred to as a yield): When you buy a business, you not only buy its assets, but also the right to all profits the business may generate. Capitalising annual earnings is the most common method used to value a caravan park business, using the rate of return on investment (ROI) a buyer can expect to get from the business. Adjusted net profit is capitalised at an agreed rate of return (based on industry standards).
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