Buying a caravan park
Find the right caravan park and the financing you need.
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Caravanning holidays are a rite of passage for many Australians, and you can find caravan parks in prime locations and holiday spots right around the country. If you're thinking of buying a caravan park, either to manage yourself or as an investment, there are several factors you need to consider before signing the contract.
This guide examines how you can choose a suitable caravan park to buy, how much caravan parks cost, and how to find the financing you need for your purchase.
What factors should you consider when buying a caravan park?
Should you buy a caravan park? Consider the following factors before deciding whether it's the right course of action for you:
- Your experience. Previous experience managing a holiday park or other hospitality business of a similar size will be crucial to the success of your loan application. It could also have a big impact on whether you can run a profitable business, so you may wish to gain further experience before you try to own a caravan park.
- Your qualifications. Do you have a Certificate IV in Hospitality or Small Business Management? What about a Diploma of Hospitality Management or an Advanced Diploma of Hospitality? These qualifications could help you gain the knowledge you need to more effectively run a holiday park, and having them will also strengthen your loan application.
- Licences. Keep in mind that depending on the park you're thinking of buying, there are several licences you may need to acquire. These include a caravan site licence, an accommodation licence, food and beverage licence and liquor licence.
- Occupancy levels. How full (or empty) is the park on a regular basis? Benchmark occupancy levels change frequently and also vary by location, but as a general rule an occupancy rate of less than 50% represents an underperforming business.
- Ratio of annual site holders. Annual site holders are valuable customers who are crucial to the financial stability of a holiday park. Look for a park with a decent ratio of annual site holders, and also try to avoid getting any of your repeat customers offside when you assume ownership.
How much will a caravan park cost?
How much it costs to buy a caravan park will vary according to a wide range of factors, such as:
- If you buy a freehold caravan park (the land and the business) or a leasehold caravan park (the business only)
- Where the park is located
- The size of the caravan park
- Annual business earnings
- Accommodation options (not just powered and unpowered sites but also cabins and villas)
- Guest facilities (tennis courts, swimming pools, playgrounds, jumping pillows, etc.)
- Occupancy rate
- Number of staff, their experience and qualifications
- Market conditions, including competition from other local accommodation providers
This is far from an exhaustive list, and accurately valuing a business is a complicated task. With this in mind, it's recommended that you ask your accountant or business advisor for help in determining a fair price to pay when buying a caravan park.
Loans you can consider when buying a caravan park
How can I make sure the business is worth buying?
Before deciding whether a caravan park or any other business is a worthwhile purchase, you'll need to determine whether it's in good financial shape. To do this you'll need to consider the following:
- Business financials. What is the park's recurring net operating revenue? How has it performed over the past five years? Are there opportunities for growth or improvement? If buying a freehold as an investment, you'll also need to consider the financial stability of the current tenants.
- Why the current owners are selling. Are they looking to make a profit, or is there a more serious underlying reason why they want to offload the park?
- Occupancy levels. Lenders will generally want to see a holiday park with occupancy levels of 60% or more before they will approve a business loan application. Checking year-round occupancy levels, including the ratio of annual site holders, will also give you an idea of where the strengths of the business lie and where there is room for improvement.
- Location. Remember to look not only at the park's proximity to local attractions and experiences but also at what sort of competition is around from other accommodation providers. Does your park stand out from the competition, or could you improve it so that it does stand out?
- Facilities. Does the park have the necessary facilities for the type of guests you're trying to attract. For example, if young families are your target market is there affordable cabin accommodation, a playground, swimming pool and heaps of other recreational options?
- Building and pest report. This is a crucial part of the due diligence when buying a caravan park and will turn up any costly issues that may arise in the future.
- The lease. If buying a leasehold, look for a long lease term that allows you enough time to grow the business and pay off your loan. Also get your solicitor to take you through the lease agreement to make sure you're fully aware of your rights and responsibilities in terms of maintenance and upkeep.
- Council restrictions. If you're planning on renovating or upgrading the park, check with the local council to find out whether there are any restrictions on what you can or can't do.
How can I finance the purchase of a caravan park?
You can finance the purchase of a caravan park with a caravan park commercial loan. Loans are available from an extensive range of lenders. However, as caravan and holiday parks are seen as specialised security, they're classified as high-risk lending options. This means the maximum loan to value ratio (LVR) you can expect for a loan to buy a freehold caravan park is usually 50% of the property value.
To apply for a loan you'll need to provide:
- Evidence of your financial situation
- Details of your previous caravan park/hospitality management experience
- A business plan that shows revenue and cash flow forecasts
Your accountant can help you draw up a comprehensive business plan that includes all the essential information and maximises your chances of approval.
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