8 Steps to Developing Financial Projections for RV Boat Acquisitions

By Tyler Lambert

Developing accurate financial projections is crucial for evaluating the viability of a boat and RV storage acquisition. Sound projections will help you understand the business’s financial health, assist you in making informed decisions, and position you for long-term success. It’s recommended to start putting together projections when you find a facility where you intend to submit an offer. This article outlines the eight fundamental steps to creating robust toy storage projections aimed at acquisitions.

1. Market Research: When creating financial projections for a boat and RV storage facility, it’s vital to understand the local market demand. To do this, you need to conduct market research that includes gathering data on the surrounding area of the target facility. This data should include the current population and projected growth for the next five to ten years, demographic trends, competition from existing facilities and current toy storage rental rates. Hiring an industry expert to assist with market research can also be helpful.

• Competition: Understanding your competition is essential in any industry, and the boat and RV storage industry is no exception. The first step is to identify your primary competitors, usually boat and RV storage facilities within a 1-3 mile radius of your facility. However, this radius can be larger in rural areas. You can use Google Maps, a simple and effective tool to locate your competition.
• Rental Rates: Researching boat and RV storage rental rates in the subject area is imperative when formulating projections. Online searches, calling nearby facilities, visiting facilities and industry reports can all help determine the state of the local market.
• Population: Population growth is a crucial factor to consider when researching boat and RV storage demand in an area. The United States Census Bureau is a helpful resource for tracking population trends. Visit www.census.gov.
• Demographic Trends: Understanding demographic trends such as age distribution, income levels, housing trends, marital status, household size and lifestyle factors can also provide valuable insights when researching a specific market. Different age groups have varying storage needs. 

2. Collect Financial Information: To evaluate a boat and RV storage facility you want to acquire, you will need to gather financial statements and operational data. This includes tax returns, profit and loss statements, rent-roll statements and management reports. Once you have collected this information, review the facility’s historical financial performance to understand its revenue trends, expenses and occupancy rates. Usually, the banker you’re working with can assist you in obtaining this information. To make the process smoother, you can collect a pre-qualification letter from a bank and provide it to the seller when collecting financial information.
3. Estimate Revenue: Based on your market research and the target facility’s historical performance, estimate the facility’s potential rental income. Consider all factors, including unit sizes, market rental rates and occupancy rates. Determine what the current seller charges compared to the local competition. Also, find out the seller’s current physical occupancy. These questions will help you generate your projections. 

For example—if the facility is currently at 100% physical occupancy but charges 15% less than its surrounding competition—there may be room to increase rental rates and grow revenue.

4. Estimate Expenses: Estimate the facility’s operating expenses, including property taxes, insurance, maintenance, utilities and staffing costs. Among these, property taxes are typically the most significant expense associated with a boat and RV storage facility. To ensure the facility is well-managed, maintain an expense ratio (percentage of revenue used for operating expenses) of 25-35%.

Consider any improvements or renovations needed after acquisition and how you will manage the facility. Common options include managed on-site, remote self-managed, hiring an on-site manager or third-party managed.

5. Calculate Net Operating Income (NOI):The NOI is a key indicator of the facility’s profitability. In simple terms, NOI is the earnings you generate after deducting your expenses from your revenue. To calculate NOI, subtract the estimated operating expenses from the estimated rental income. Ideally, NOI should be 65-75% of your facility’s revenue (equivalent to a 25-35% expense ratio). If you plan to finance your facility, you should aim for a NOI exceeding your principal and interest debt payment. 
6. Adding in Financing Terms: If you are planning to buy a boat and RV storage facility and need financing to pay for it, you should consider how the loan will affect your Net Operating Income (NOI). Once you find a facility that interests you, it’s best to work with a lender who can help you evaluate your potential profitability after factoring in your loan debt. 

For example, a $1,000,000 SBA 7(a) loan with a 25-year term, amortized over 24 years, and a 9.5% interest rate will have an interest-only payment of $7,917 and a principal and interest payment of $8,828. It’s best to work with a lender with experience with boat and RV storage facilities to ensure they understand the unique financing needs of your business and adequately account for your NOI.

7. Factor in Capital Expenditures: Consider any capital expenditures needed for improvements or upgrades to the facility. Improvements can range from replacing roofs, to painting, to updating the landscaping, and installing a new gate. Be sure to include these costs in your projections. Improving the facility can help attract new renters or justify an increase in monthly rent charges.
8. Create Your Cash-Flow Projections: To create cash flow projections for a facility, you can use its NOI (Net Operating Income) and financing costs. Subtracting your debt payment from your NOI gives you cash flow. For instance, if your NOI is $6,250 and your monthly debt payment is $5,000, then your cash flow (debt service coverage) is 1.25%. It’s important to consider the impact of debt service on cash flow.

Banks typically require specific debt service coverage (cash flow) figures when underwriting a loan. It’s a good idea to ask your lender about this metric. You can calculate annual debt service coverage by dividing your annual net operating income by your annual debt payment.

It’s important to be cautious when creating boat and RV storage projections. Being overly optimistic, underestimating expenses, and ignoring market trends can lead to costly mistakes. To avoid these errors, you should use realistic assumptions, conduct thorough research of market conditions, regularly update projections based on new information and consider the potential impact of various factors on the business’s financial performance. By following these steps and conducting a comprehensive analysis, you can create realistic projections for a boat and RV storage acquisition that will help you make informed decisions about the investment. However, it’s important to note that these steps should supplement and not replace a feasibility study. If you need help creating realistic projections, you can engage a feasibility study expert to conduct a market study.

Tyler Lambert is a Self-Storage Loan Officer with Live Oak Bank. Live Oak is a digital, cloud-based bank serving small business owners in all 50 states. The company aims to fulfill its mission by offering banking products that help business owners buy, build and expand, along with FDIC-insured high-yield savings and CDs to grow their hard-earned money. Under the holding and parent company Live Oak Bancshares (NYSE: LOB), and its subsidiaries, Live Oak partners with businesses that share a groundbreaking focus on service and technology to redefine banking.

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