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📈The Hidden Costs of Selling Your Resort💰

Have you ever wondered how the financial intricacies of the resort industry work?

Posted: April 12, 2024

Imagine you're at the helm of a thriving resort or campground business, a testament to your years of hard work and dedication.  You've earned your equity and it feels like the right time to enjoy the fruits of your labor.   But how do you ensure that you're not giving away a chunk of your hard-earned equity in a sale?   

 Typically, a buyer would approach a bank, secure a loan, and voila, they're the proud owner of a new business opportunity. Resorts and campgrounds are lucrative ventures, often delivering high returns in terms of cash flow. Selling to an Investor?

Let's Consider this scenario.  Your operating cost are around forty percent, and you're netting an income of around four hundred thousand dollars annually, evaluated at a capitalization rate of ten percent.  This puts your property's value at approximately four million dollars, when using the Cash Flow Approach, Net Operating income.  

But remember, this is a ballpark figure and actual valuations may vary based on other factors. Now, with the involvement of an investor, seeking returns on their investment becomes imperative.

To operate your resort or campground, a management company typically demands between eight and thirteen percent. Additionally, around ten percent should be allocated for future improvements, often referred to as 'CapEx'.

Let's crunch the numbers.  Initially, your operating cost stood at forty percent right? However, now factoring in the management cost of, let's say, 13%, and future improvement expenses of 10%, results in a 23% increase.  Consequently, the operating costs escalate from forty percent to 63%.  Suddenly, your four million dollars value shrinks to around three million, eighty thousand dollars.  That's the reality of selling to an investor.  The investor needs to look at the opportunity that your property and business has to offer.

The buyer/investor more than likely will not pay for opportunity.  The initial price needs to be just right. So, how can you navigate these financial waters?  A good starting point could be getting an appraisal.  

Remember, no two resorts or campgrounds are alike.  In conclusion, understanding the financial aspects of the resort industry is key to making informed decisions. From operating costs and potential returns to understanding the implications of selling to an investor.   These are all crucial elements of the financial puzzle.  And remember, the right price and the right potential can make all the difference.

We can help, we have been selling campgrounds and resorts since 1971. Call the campground marketplace when you are ready.
 

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