Marine Corps Veteran Robert Preston began wholesaling and flipping while still on active duty in order to make extra money. He then moved on to value-add Class C apartment buildings, but as cash flow and cap rates have compressed, he decided it was time to find a new niche. Robert began investing in mobile home parks next, and his current focus is on RV parks. In this episode, he shares why he is so passionate about this particular asset class:
1. The variety of tenants. In addition to vacationers, RV parks attract tiny home renters, professional workers who frequently travel, and families living in their RVs long-term out of necessity. His ideal mixture is 50%–60% long-term/traveling professionals, 30%–40% short-term vacationers, and 10% tiny home renters.
2. He’s able to deliver better returns than with multifamily. Because the multifamily market has become so competitive, Robert has recently been outbid by buyers who are offering much lower returns than his standard of 8% cash-on-cash and 15% IRR. RV parks allow him to stick to and often exceed his targets.
3. Limited supply and consistent demand. If the economy were to take an impact, Robert says, an RV park can be converted into a mobile home park overnight, allowing RV owners to make their homes there long-term, simply by adjusting his marketing.
4. Fewer expenses compared to multifamily. Robert doesn’t have to worry about toilets, structures, or roofing in his RV parks.
5. Freedom to raise the rent. While raising rent for an apartment complex can often result in pushback from tenants, because RV park tenants typically don’t mind paying a few extra dollars a night, Robert can raise rents as he pleases — sometimes up to 25% overnight — without complaint.
6. He’s seeing a cultural shift in recreation and travel. Since the pandemic, people are beginning to realize that they have more freedom to work remotely and travel — and they’re also realizing flying isn’t the ideal traveling experience. This is causing an increase in professionals hitting the road and working remotely along the way, resulting in an increase in demand for RV parks.
7. He’s an RVer himself. Robert and his family enjoy the RV lifestyle, so he purposely seeks out properties in areas where they would like to vacation.
Robert Preston | Real Estate Background
- Co-founder of Climb Capital, an investment firm with CRE operators that specialize in RV parks.
- Portfolio:
- GP of 809 units, $45M in AUM
- Based in: Pensacola, FL
- Say hi to him at:
- Best Ever Book: Pitch Anything by Oren Klaff
Greatest lesson: Anyone can buy and raise money; operating is where the rubber meets the road in tough times.
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TRANSCRIPT
Slocomb Reed: Best Ever listeners, welcome to The Best Real Estate Investing Advice Ever Show. I'm Slocomb Reed and I'm here with Robert Preston. Robert is joining us from Pensacola, Florida. He's the co-founder of Climb Capital, an investment firm with commercial real estate operators that specialize in RV parks. Their current portfolio - they're a GP on 809 units, with 45 million in assets under management. Robert, can you start off by giving us a little more about your background or what you're currently focused on?
Robert Preston: Hey, thanks, Slocomb. I'm really honored to be on the podcast. I follow you guys a lot and read all the books, so - really cool to be out here today. My background is relatively simple - I graduated from Compton University and went into the Marine Corps as a Marine Corps pilot. I flew the Osprey, the V22, and did a couple of deployments to Afghanistan. Through that process was when I started in real estate, really 2012. I finished out my Marine Corps career in 2020; a great time to leave a full-time paying job to be a full-time real estate investor, the summer of 2020... And since, I started and founded Climb Capital with Jeremy Hans, and here we are today.
Slocomb Reed: Does that mean, Robert, that the 45 million in assets under management have all been acquired in the last two years, since the summer of 2020, or did you start before that?
Robert Preston: No, we started well before that. As an individual, I started investing in real estate really 2012. I started out as a wholesaler, wholesaling and flipping single-family houses, and then needed the residual cash flow income. Bought our first mobile home park, bought an office building, and start buying the class C apartment complexes [unintelligible 00:05:13]. However, I would say, that 45-million asset is probably all properties we purchased in the last two years, because we've also sold most of those deals that we bought in the beginning.
Slocomb Reed: Gotcha. So you have experience in a lot of commercial niches, but currently, your focus is RV parks. Tell us about that, why RV parks?
Robert Preston: Great question. Like most of us, I started out looking for a value-add class C. I need something full-time management, just by the book. We did that, and we've been very successful through it, but I think everyone would agree that it's getting really, really difficult to find a great deal. I used to think an expensive deal was like a seven cap, and I'm sure we would all buy that in cash, hard moneym, day one, if we could find a seven cap. So our strategy or thesis has always revolved around the idea of cash flow first, and not the phantom or the market appreciation to make our returns. We're okay with forced appreciation, I'm not really okay with betting on market appreciation.
So as the competitors and the competition came in and the prices increased, thus the returns have decreased, and so we moved to mobile home parks. Now we're seeing that similar trickle effect coming down. We bought our first RV park in also 2020. Since then, just really saw a great opportunity there, both from the buy-side and the sell-side, and the excellent cash flow. Basically, just out of necessity getting pushed out, searching for returns has pushed us down to the RV park. I'm also an RV-er, I've got four little kids, and I love the lifestyle. It's a lot nicer to buy somewhere you would go on vacation than a classy apartment complex that I'm not going to go on a vacation to. So it's a little bit of a lifestyle as well.
Slocomb Reed: Yeah, that's awesome. Let me try to summarize, Robert; please correct me anywhere I need to be corrected. Active-duty Marine Corps, deployed a couple of times, started wholesaling and flipping while active duty in order to make money on the side; you decided you wanted it to be more residual income-based.
Robert Preston: Yup.
Slocomb Reed: And found class C value-add apartments to get great cash flow. As you have seen cash flow and cap rates compress, you've moved into a new niche. A lot of people went from apartments to mobile home parks; as you've seen, and as you've just said, now cash flow and cap rates are compressing with the mobile home parks, so you've moved on to RV parks. Added bonus, you're an RV-er, and you're buying properties that interest you personally, and in places where you want to take your family.
Let me ask Robert, when was it that you decided with your partners that it was time to shift industries within commercial real estate? Did you have specific target metrics that you just realized you were never going to be able to hit, so as soon as all the deals fell below a certain cap rate, a certain cash-on-cash, you just decided to move on? Was it more of a gut thing? When was it that you made those decisions?
Robert Preston: That's a really great question. I'll try to answer it, because I think there's a couple of components there. First, I'm a bit of a deal junkie, so whatever I think I can make money on it is what I'm going to do. Part of being a naval aviator is that we are very thorough in our planning and we're very precise in our planning, but we also realize generally about five minutes into the flight, everything we did and worked on it for the last three months’ worth of planning is just out the window, and you've got to improvise and make it work. So being adaptive and flexible is one of our core values to what we do.
So through this process, I just randomly came across our first RV park; it was a per acre, per pad, whatever, it was just extremely cheap. I looked at it and was like, "We don't know anything about RV parks, but it's got great financials just like anything else. We're going to make, whatever it is, a 30% IRR return on this. Let's just figure it out." So by dumb luck, a little bit, of falling into that first one in 2020... Our metrics for our investors are 8% cash-on-cash and a 15% IRR at a minimum. I think that's kind of the generic target standard.
So for us, that pivotal moment really was the end of 2021, when we would get outbid by millions of dollars on apartment complexes. I know the numbers, I know there was no way they're going to meet those metrics, and then I started seeing the other sponsors sending out stuff that was 11% or 12% IRRs on a best-case six cap exit plan, with a very low expense ratio. I was like, "No offense, but there's no way that's going to work perfectly. Your plan, if it was executed perfectly, you wouldn't make that. And even if you did, a 12% IRR is just not sufficient."
That's when we realized we're always going to get outbid by someone who is willing to reduce their underwriting to make the deal work, and lower the returns. So really, at the end of 2021, we'd already bought three RV parks and were operating them, so now we've made a hard shift; instead of just letting them come to us piecemeal, now we're targeting direct to the owners and really pushing hard this year.
Slocomb Reed: You went from apartments to RV parks by way of mobile home parks, correct?
Robert Preston: Correct. Yeah.
Slocomb Reed: So you've made this transition twice now?
Robert Preston: Yeah, two pivots. The RV park is a little bit of a natural progression into the RV parks, because some of the lower quality RV parks are really a mixture between a mobile home park and an RV park. So there'll be some mobile homes in there, and then there'll be some long-term tenants living in an RV park. So that was our first exposure, it was really a glorified mobile home park with RVs in it. Now we buy more of the resort-type, vacation, your by-the-night rental.
Slocomb Reed: That's my understanding - limited experience with RV parks of course, but my understanding is that there are really two business models within RV parks. Similar to apartments in this way, you have long-term tenants and you have short-term guests.
Robert Preston: Yup.
Slocomb Reed: So the people who park their RV there year-round, and the people who come in for the weekend, or the week, or a couple of weeks; are you saying that you focus primarily on the shorter stay, resort location type of deals?
Robert Preston: Yes. Originally, the first couple we bought were purely long-term, by necessity, living. There are also two types of long-term RV-ers. There's the individual or family that is living there out of necessity because of their inability to afford some other type of housing, or there's a long-term RV-er who -- by their profession, dictates movement. Traveling nurses, construction managers, and even certain engineers working on big projects. They're highly paid, well compensated, and great residents. They're just out of necessity going to be gone for six months or eight months from their residence, and so they live in...
Slocomb Reed: Gotcha.
Robert Preston: To answer your question, currently, we like parks that have that latter, so the professional worker, and then also we have the retail. So for us, the ideal mixture of a park is we bring in tiny homes at about 10% of the pads, we rent about 50%-60% of the pads on the monthly rate to the traveling professional, and then that leaves 40%-30%, depending on that ratio, to the retail overnight vacationer traveling person. It's awesome for us, because it's just a couple of levers we can tweak and pull, based off the season, based off the demand of the area, to always kind of optimize the cash flow and NOI.
Slocomb Reed: You mentioned 10% for tiny home homes. Now, are you talking about tiny homes on wheels, or are you talking about the thing that people are constructing from the ground up in a location?
Robert Preston: You would also refer to them as park model homes. They're on wheels, on the frame, they look like a little log cabin, front porch, very cutesy, a lot of exposed wood, loft, that type of stuff.
Slocomb Reed: But you can hitch it to your truck with a tow package and take it somewhere?
Robert Preston: Technically, yes. A very big truck.
Slocomb Reed: Yes.
Robert Preston: Yes, not your normal truck. But technically, yes; they're still titled as an RV, which helps us to eliminate a lot of zoning setup criteria. So we can pull it right into a lot, plug it in essentially, and be ready to go.
Slocomb Reed: Gotcha. Robert, I would like to play devil's advocate.
Robert Preston: Sure.
Slocomb Reed: You're clearly experiencing some success. Actually, before I do that, you are syndicating some of these RV deals, yes?
Robert Preston: Correct.
Slocomb Reed: Have you gone full cycle with an RV deal yet?
Robert Preston: Yep. We're recording this March timeframe. We sold one a month ago, in February. It was a relatively small deal that we bought for $575,000 and we just sold it for $1.2 million two years later.
Slocomb Reed: Gotcha. How much did you have to put into it after you bought it?
Robert Preston: Nothing. No capital.
Slocomb Reed: Got it. I imagine you offered a pretty juicy return then to your investors. What did that look like?
Robert Preston: They made a three multiple on their money. Per year, it was close to 76% IRR. It's sort of a ridiculous number.
Slocomb Reed: Yeah, that's awesome. How long was the hold period on that?
Robert Preston: Right at two years. Exactly two years.
Slocomb Reed: Two years. Okay. Awesome. On the deals that you've most recently closed that have not gone full cycle, what kind of return are you projecting for your investors?
Robert Preston: On an IRR perspective, low 20s. The syndication we just closed had a 10% pref on it, and still will come out to be low 20s, mid-20s IRR.
Slocomb Reed: Gotcha. Now that I've given you the opportunity to talk about how much better your returns are than apartment investors, I'm going to attempt to knock you down and I want you to have the opportunity to respond.
Robert Preston: Let's do it.
Slocomb Reed: Good. I'm an apartment investor, because that's what got me into real estate. I just haven't gotten to the point in my career yet where I've chosen some other asset class. But thinking from the perspective of apartment investors, or from the perspective of LPs who hear what we're saying right now, and maybe thinking something along these lines, here we go. Robert, the reason to stick with apartments instead of going to mobile homes and then going to RV parks is that first of all, the apartment industry is massive. It's also much less impacted by major fluctuations in our economy.
We are building a lot more new apartments than we are mobile home parks and RV parks. So yes, returns compress; a lot of people get into the mobile home park space. Inventory is limited if not capped when it comes to mobile home parks in a way that it is not with apartments. It is similarly limited or capped, and probably smaller for RV parks, the industry as a whole, than it is for mobile home parks. I'll confess, I don't have the numbers on this, but my gut tells me, Robert, that an RV park is going to fluctuate a lot more with the market cycle and what is happening in our economy than apartments.
So not only is the apartment industry much larger, but it's also less impacted by where we are in the market cycle, it has opportunity for growth... There will be more apartments this time next year than there are this year, unlike mobile home parks and RV parks. And some people will be willing to take a lesser return for the type of certainty that apartment deals provide. Robert, what do you have to say about all that?
Robert Preston: Dude, that's like a lot of questions.
Slocomb Reed: We've got some time to dissect all of this.
Robert Preston: Alright, so now we got some meat for this podcast.
Slocomb Reed: Yes.
Robert Preston: Let's break it down. You mentioned the supply chain for apartments; we're going to build more apartments, they are coming online... And first and foremost, we still buy apartments, we still buy our mobile home parks, and we still buy office buildings. I want to throw it out there, we still do those deals. But to your point though, to me, that would be an advantage of the RV parks side. As you pointed out, most municipalities, counties, cities, etc., RV parks, they're okay with, if they come and go. But mobile home parks, certainly you're going to have the struggle to build a new one and develop it up.
So limited supply generally I would associate to a higher price. The demand is either going to stay constant or increase a little bit. So supply-wise, I think that's a good thing; they're less likely to be built up. When we talk about the demand from a housing perspective, why do we all like class C apartments, hypothetically? Because there's always going to be a need. The necessity of life for someone to live - you need food, shelter, and housing. You don't have to have great housing, it doesn't have to be class A housing, but you have to have a place to live. That's why we all started out in a class C apartment avenue.
So I would argue that the same applies particularly to mobile home parks; not so much RV parks, if you think about the RV park on the surface. However, going back to that first RV park that we bought, which was essentially 36 people living in an RV out of necessity, because that was the cheapest way that they could find housing. So my worst-case scenario for a lot of these RV resorts is that if the economy were to change or impact, I'm still insulated, in the fact that I can convert that RV resort to a glorified mobile home park overnight, by just adjusting that marketing, adjusting my criteria, my restrictions, to allow anyone to come in there with whatever type of RV and live there instead of on vacation.
The reality is, I'm getting the same rent as most people are getting for an apartment complex per square foot, and I have no expenses, I have no toilets, I have no structures, roofs etc. I've got electrical outlets, I've got a water spigot, and I've got a hole for stuff to go out. So presently, we've got a great economy, people are traveling, and we're going to do the retail vacation model. If that were to adjust, well, people are going to get pushed out and we would be one of the cheaper places where people live. So I think we will still have plenty in demand there, we've seen that in the past.
And then I'm pretty certain there's a big change in culture, particularly when it comes to recreation and travel. You've probably flown recently, I've flown recently; it's just not a pleasant experience. It just isn't it anymore. So the idea of traveling overseas and going through that harassment, for a lack of better words - it's not as exciting anymore. 2020 taught us a lot of things, and that was it's okay to work from home, it's okay to travel, it's okay to work on the road. You and I are doing this via Zoom, I've got three employees that work remotely... So the idea of work travel and working from the Rocky Mountains on your laptop - why not; from the RV park, instead of wherever you came from.
So more people are working out of the office, and people are enjoying outside more, more space from a safety perspective... So the industry of RV sharing is a whole entire industry; it really popped up in the last three to five years, with basically Uber for RVs. You don't have to own the RV anymore, or the travel trailer to go on vacation and go camping; you can rent it off your neighbor, for a lack of better words.
That's a whole new supply of customers that has never existed before in history. Then you just look at the RV sales by unit, it's just astronomical over the last three years, and so there's a ton of inventory there from a customer perspective.
Break: [00:21:01] - [00:22:47]
Slocomb Reed: Robert, that was great, thank you. A few things from that. I should have thought of this before, but it makes so much sense to track RV sales as a metric for RV park investing. Do you have some numbers behind that increase since COVID? To your point, we've seen a change in lifestyle over the last couple of years - again, recording in March of 2022. I want to respond and give an apartments argument, but I will concede that the idea of flying to a destination being the only way that people go on vacation is done. The world doesn't operate that way anymore. My question was, do you have the metrics on the increase in RV sales since COVID?
Robert Preston: I do, but not intelligent enough to speak here in public. One of the metrics would be, I think Jayco, which is one of the leading mid-grade $20,000-$50,000 travel trailer. Not even mid, probably lower mid-grade. They're back-ordered, with $14 billion in backorders right now. So they will not produce a unit that has not already been accounted for, for the next three years. That's one metric percentage growth-wise; I think last year was like at a 40% growth for the year. That was a one-time uptick. But think if I remember the metric - don't quote me on this - between 2010 and 2020, so for the decade, it was around an 11% growth rate, RV users. That's correlated to what we've seen is about a 12% price increase per year over the last three or four years.
Here's another thing that's really cool about what we do. You've got your apartment complex and it's $1,000, a month's rent. You can raise it to $25 or $50, and probably not get a whole lot of pushback. But if you think about that, percentage-wise, that's 0.25%. We bought a park in December, and the nightly rate was $37 a night. The next day, I changed the rate to $45 per night. To the customer, that was $8 to them, per night, no one cares. But if you think about that from a percentage perspective, how that extrapolates over the year, basically increase the rent by about 25% overnight, and your customer doesn't care. They're happy, I'm happy, it's great.
Slocomb Reed: No tenant in an apartment building is happy about a 25% rent increase, for sure.
Robert Preston: No.
Slocomb Reed: Points to RV parks. We were talking about your model of breaking down the way that you rent your spaces in your RV parks into three different market segments. When you are projecting the returns for your deals, the returns that you share with investors, for example, are you basing those returns on a divided into three pieces model, or are you basing them on the conservative, have to turn this into a lower-income housing type situation?
Robert Preston: That's a good question. We underwrite it -- I think we're still conservative, and here's why. Realistically, with our monthly rentals, we're using around a 75% occupancy rate for the year. The reality is most of the time we're in the 90s, just like an apartment complex would in the long term. For the cabin rentals, the tiny homes - again, we're using something we would pull from like AirDNA, VRBO, and Airbnb. Similar comp, occupancy's usually running 40%-50%, and then same on the nightly rates. We would, for the year, probably use an occupancy of around 40%-50% for those. So we're using different rates and different occupancies for each category.
Again, most of the time - we've got parks in Florida, they're just full all the time no matter wha; they just are. So even though we're underwriting at maybe a 50% occupancy on our overnight stuff, the reality is we're running about 85% even, nightly rate. We tend to err on conservative; everyone says that, I really think that we are. The exit cap rates we're using, most of the time, we're still using nine cap on the exit, which I've already seen decompresses a significant amount since we started in RV parks. But that's how we're coming up with our returns.
Slocomb Reed: Gotcha. One last piece to the argument. Thinking specifically about prime locations for RV parks versus apartments - we do in apartments have something similar, and you kind of touched on it. We can go short-term, or we can go medium-term. It's a different business model; it does jack up returns, jacks up gross revenue, net cash flow, and it becomes a different industry. You put yourself in hospitality, instead of landlording, but we can do that in apartments too, if you're in the right location and if you're willing to stomach the change of business model from long-term rental to hospitality.
If I can summarize this argument, I do think it's clear, Robert, that the return that you were able to deliver when you have a full cycle on your first RV park, and the returns that you're projecting for your deals are higher than the returns that are being projected for the vast majority of apartment syndications. Whether or not there is more risk in other asset classes than apartments is up to our listeners to decide for themselves and their own investing strategies.
Robert Preston: Sure. One final comment - I don't really want to convince you.
Slocomb Reed: No, totally. This is a good point, Robert. There should be people on both sides of this argument. And frankly, hearing the returns that you're getting, that's part of the reason that I knew we could have the argument in the first place. I knew that there should be people who decide going both ways for themselves. This isn't necessarily about convincing anyone how they should be investing, it's more about - well, first of all, having fun. We do a lot of these interviews; it's not often that I get to go at somebody like this.
Robert Preston: I'm okay with not having a lot of competition. I'm okay with that.
Slocomb Reed: Yeah, totally. I get that. As of today, over 30 of my episodes of Best Ever have aired, and I've only spoken with one other person who's in RV parks, and they're not doing it full-time. It was just their first foray that they closed on a couple of months ago. They were excited, citing some of the similar things that you are now about their first RV deal. So yes, I understand. Not trying to create any more competition for you, but this has been great. Are you ready for the Best Ever lightning round?
Robert Preston: I'm ready.
Slocomb Reed: Great. What is the Best Ever book you've recently read?
Robert Preston: One of the ones I love is Pitch Anything, Oren Klaff.
Slocomb Reed: Pitch Anything.
Robert Preston: Yup. Oren Klaff, Pitch Anything.
Slocomb Reed: What is your Best Ever way to give back?
Robert Preston: I thought about this and I want to be careful how I say it, because I don't really see it as giving back, but me and my wife are foster parents and adoptive parents. And just seeing the difference in a little kid or even a baby coming from a very traumatic -- and then being in a good household... And this is not trying to brag on myself or the family. But just seeing how a kid can flourish so quickly and recover so quickly when they're just loved and cared for. That's my passion.
Slocomb Reed: That's awesome. What is, Robert, your Best Ever advice?
Robert Preston: It's pretty simple. You don't need permission to get started or to be successful. I think we're all just waiting for some type of metric, some type of event, some word of advice or confirmation. You've got to get going, get moving. Take the first step and figure out the next step after that.
Slocomb Reed: That's great. Robert, where can our Best Ever listeners get in touch with you?
Robert Preston: Our website is climbcapital.com, info@climbcapital.com would be an email, and my cell phone is 850-712-5139.
Robert Preston: Awesome. Well, Robert, thank you for sharing with us your investment journey, your path from asset class to asset class, as you have been chasing the high returns that you shared with us, and thank you for engaging in some debate with me about various asset classes. I do believe we've given some value to our Best Ever listeners here.
Best Ever listeners, thank you for tuning in, I hope you agree with me. If you found value in this episode, please do subscribe to the podcast, please leave us a five-star review, and please share this with a friend who you think will also enjoy and gain value from this conversation here with Robert Preston. Thank you and have a Best Ever day.
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