By Codie Sanchez, Venture Capital & Private Equity, Partner at Entourage Effect Capital
You know what’s amazing in business? There are a zillion ways to make money in this wild world of commerce. As a venture capital and private equity investor, sometimes I think I’ve seen them all.
At EEC and Unconventional Acquisitions, we typically focus on acquiring small, profitable businesses because of the repeatability of that model and the ability to use SBA loans and seller financing.
The idea I’m going to share here meets none of those expectations. But, this business idea just may surprise you with its relevance, simplicity and oddity. What is it?
Invest in plots of land for campers.
A story first: A group of friends and I were going to Zion National Park. We were excited to explore and get lost. In this era of Covid-19, however, all of the hotels were shut down, as were national park campsites. What were four road-weary humans to do?
One of my industrious friends was not to be deterred and said, “Don’t worry. I’ve got it.”
Got it he did. He found us a for-pay campsite on private land. Having never heard of this model, I was intrigued and chatted with the owner. The rancher who owned the place told us he makes more on campers than cattle. He went on to mention that his business model is a twofer: tax breaks for agriculture alongside the ultimate low-maintenance rental income. Case in point: The bathroom is a literal hole.
This experience, and my conversation with another entrepreneur, got me thinking. On her podcast, serial entrepreneur Kate Hancock told me she bought three acres of land in Joshua Tree for $10,000 that she lists on Airbnb and VRBO for $50 per night. My motto is to question everything, so I initially didn’t believe you could get land in Joshua Tree for $10,000, or revenue off of it. It turns out the joke was on me.
Lo and behold, at the time of my research on Zillow, there were 222 locations in Joshua Tree that you could buy for an average price of $10,000 to $22,000. I quickly scanned other locations, including around Zion National Park, and found the same phenomenon. Cheap, plentiful land right around national park locations, ripe for tenting.
If you want to buy a business that is low maintenance, low cost, low risk and doesn’t have much wear and tear, a plot of dirt appears to hit those parameters.
Let’s do the math.
Say you buy a property for $10,000 in cash, although you could also consider financing it. You have spent $10,000 in operating costs with no overhead. You list it on sites such as Airbnb and VRBO as a campsite. Depending on the desirability of the campsite, you charge campers up to $50 per night. During peak seasons, you could potentially bring in $1,500 a month in revenue.
You will need to pay property and income taxes, as well as insurance costs. There are also processing fees to factor in: Airbnb, for example, charges hosts a 3% fee. Otherwise, your costs can be minimal (refer to aforementioned hole as a toilet). That’s a huge potential profit margin, and you could break even in less than a year, assuming consistent occupancy. There is also the potential appreciation of 3% to 5% per year on the property.
There appears to be a scalable aspect to the model as well. For example, if you buy land in various desirable locations for $100,000-plus, you could potentially make up to $15,000 a month in revenue through camping rentals.
Assess potential risks and considerations.
There are concerns and queries I would urge you to consider before buying a plot of land, however, to ensure it is a good financial and business decision for you:
• Is seasonality a big factor when it comes to bookings in that area? This will impact your occupancy rates and, thus, your revenue.
• How does insurance work on the property? How are you covered, and how much will it cost?
• Are there requirements for cleaning crews or bathroom facilities, or can renters use open air?
• What is the accessibility and roadage around the property like? Is it accessible by car, or is it an off-road location? A property that is only accessible by off-road vehicles will limit its rental potential.
• Are there other uses for the property, such as festivals, events, hunting, etc., that you could leverage for revenue streams if individual rentals aren’t consistent?
Consider resources that can help you scale up.
We millennials do love our camping. Hipcamp is a prime example of this. Similar to Airbnb but for camping, Hipcamp is a site where you can list your privately owned campsites. With the listing, you receive a $1 million insurance policy automatically and gain access to its base of excited campers. Startups like Airbnb, Hipcamp and others are making it easier to tap into the millennial market for campsite rentals.
Perhaps you get tired of answering the pestering Airbnb questions (I know I did on my property). So, consider adding a property manager for up to 25% of the profits. While that cuts into your profit margins, it also allows you to focus on growing your other businesses.
As with any rental market, local rules and regulations will vary. Some land owners are reportedly “skirting government rules and regulations” to rent out their campsites. It is imperative that you do your research to remain in compliance with all local rules and regulations.
You will need to consider zoning, rental allowances, ability to rent on Airbnb or Hipcamp inside certain areas, special use permits and more. I recommend relying on your local realtor for more information on how to be in compliance; an assessment of the competition would help as well.
The moral of the story is that success in business is largely a product of your creativity. Maybe all you need is a little dirt.