Newbie Question

[Arc]

Brand new to the RV world.  Love forums like this for getting the real scoop.  Wanted some opinions on my experience today.  Went to a dealer to inquire about an upcoming rental - will be my first RV trip.  Talked to what seems to be a sharp lady in charge of the rental dept.  She told me the following:

1.  They have less than 10 rentals.
2.  All rental units are privately owned and rented under a "consignemnt" type deal where the owner and the dealer split the rental fees 50/50.
3.  Under the deal, they store, maintain and rent the thing.
4.  No gurantees were given, but belief was that rental income would meet monthly payments under a 20 year financing plan.
5.  Intent would be to trade in after 5 years and start again.

It sounds somewhat interesting and was wondering if you folks had any thoughts. 

 

[Ned]

After 5 years, the rental RV would be worth less than the balance on the loan.  Not a very good investment.

 

[Wendy]

RV renters generally aren't very kind to the units they rent and often don't know what they're doing and unintentially do harm. I wouldn't want anyone I didn't know using my motorhome.

Wendy
Pahrump Nevada

 

[Shayne]

Wendy  You are dead on the money.  We do enough damage to the units themselves  without some one else damaging them.

 

[Bob Buchanan]

5.  Intent would be to trade in after 5 years and start again.

It sounds somewhat interesting and was wondering if you folks had any thoughts. 

Actually, it can be a good way to get into an RV with help on the 1st two years of depreciation. Was the five years your intent or the policy of the rental agency? The agency I was very familiar with in the Sacramento area only kept the rig for two years. At that time, it would have 30 to 40K mileage, and could either be sold to the owner under a refinance that would be more comfortable than a new rig for them -- or sold outright from their used rig lot. IIRC, once a rig reached 40k, they sold it or the owner refinaced regardless.

Some consignment owners may decide to do the same thing again with another new rig for another 2 years. That would be a function of how they did financially -- plus gives them a newer rig when they decide to take it over themselves.

Most will say stay away from rentals because of the abuse they take. That also is not always the case. My experience was that the rental agency I was familiar with took better care of the rig than most actual owners. If one buys a rig from a private party or a used rig from a lot -- they may get a rig that wasn't maintained properly compared to how well the rental agency did the same thing. The agency I worked with was exactly on time with every maintenance item, kept good commercial insurance on the rig, and cleaned from bumper to bumper plus inspection. If anything was amiss, they fixed it and charged it to either the person who rented it, or it was covered under their insurance program.

OTOH, there are the rental agencies that let the rigs go -- so that would be your chore. Find out just what their program is and how they apply their maintenance schedule. My rig was not on consignment, but rather in their fleet while I was not able to drive it. This allowed me to keep up the payments but not out of my own pocket. They removed the hub caps, awning, rear ladder, coffee maker, cigarette lighter, locked the tow hitch -- and place a no smoking sign on board.

The other item I would suggest is if you did this, consign a rig that is popular to renters. The more it rents, the more money you make to cover the loan -- plus any profit. I was lucky in that my rig was a favorite dressing room for musicians and other show folk doing gigs at CalExpo 5 miles from the rental agency. So after two weeks at 130/day, they would only add 10 miles or so to the odometer. The most popular rental is the 24 foot Class C.

And finally, ask the dealer to allow you to chat with a few of the others that have their rigs on that type of rental consignment to get their feedback. Also, ask if the renter breaks down in the middle of nowhere, how do they get help to them and keep the rig in good shape.

 

[chaajoad]

Arc -

First off, welcome. I'm less than a year into our first MH and it's been fun, frustrating, anxiety-producing and extremely cool. With any luck, this coming spring/summer will be a bunch of fun.

Speaking of luck ... so far I think I've been VERY lucky with our rig but I'd like to comment. I bought our MH on ebay, sight unseen. This was after a LOT of searching and asking questions. Only after the purchase did I discover that it was a rental unit. I don't know if I would have done anything differently had I known, but so far everything works and the coach is in very good condition. There have been a few minor things and that's to be expected but I've been able to fix them on my own - and with advice from this forum. Ideally, we would have preferred new but even for an entry level unit, it would be out of our range.

I bought a used house and that's been excellent. I bought a used car from a reputable car broker and it's been a terrific vehicle. Frankly, I don't see any difference between buying those items and a used RV. And I also have read many stories of brand new MH's with hefty price tags giving owners all sorts of troubles.

My bottom line: if I were to buy another MH, I would not rule out rental units.

 

[Arc]

Thanks for the responses!  Some add'l info that may clarify:

1.  The 5 year cycle was mentioned and not discussed much - would have to look into it further.
2.  I asked her if she could pick the unit to add to her rental fleet - what would she choose.  She picked a Coachmen 35' Class A - a very nice unit.  She said she would sell to me at her cost. 
3.  She assumed she could rent it for 2K per week - for 11 weeks per year.
4.  She said they were other chargers to renters that would send add'l $ my way (extra mileage charges, generator fees, satellite tv fees etc...)
5.  She gave me the impression that folks that rent Class As tend to be a little easier on them.  That they are rented by people that are more interested in impressing folks vs people that are looking for a cheaper vacation / camping getaway.
6.  At first pass, she appeared to be honest, believable and somewhat conservative in her numbers (she said several times she did not want to over promise anything).
7.  On the maintenance issue, with my poor track record of maintaining cars, it is very attractive for me to leave the maintenance to the dealer while I assume the role of validating that it was indeed done. 

Factoring the rental income, 2nd home mtg interest deduct and tax deduction for depreciation, insurance, etc.  -  the picture was painted that it would basically pay for itself.  I can validate those numbers.  What I am unsure of is the resell value after 2-5 years.  Is trading in for a more attractive RV and continuing on a realistic proposition.   

Thanks again for the input.

 

[Shayne]

Absolutely nothing wrong with buying used, or I wouldn't have one, but it';s the rental units that I wouldn't touch, reguardless of price.  JMHO

 

[Bob Buchanan]

>> 1.  The 5 year cycle was mentioned and not discussed much - would have to look into it further.
====
Rental rigs in a program such as that will turn about 20k miles per year if they are rented enough to pay your loan payments. So after 2 years, the 40k threshold has been reached -- and is the ideal time to sell. Most buyers of used RVs are looking for 40k and under. After 5 years, you now have a used rig with 100k on it -- and not many want such a rig. I just bought a '96 Adventurer with 44k on it. That's what used RV buyers are looking for.

2.  I asked her if she could pick the unit to add to her rental fleet - what would she choose.  She picked a Coachmen 35' Class A - a very nice unit.  She said she would sell to me at her cost.
====
That would be your trade-off. A 24' Class C would yield more income for you. The reason it is popular is that it is easier to drive, cost less to rent, and will hold more kids. So your objective becomes part of that decision. Is it to get into a rig yourself via this program, or to make a profit and then sell the rig? If the later, I would want a 24 foot Class C (and a Winny vs. a Coachmen).

>> 4.  She said they were other chargers to renters that would send add'l $ my way (extra mileage charges, generator fees, satellite tv fees etc...)
====
Yes, a rental fee is based on the number of miles a renter "plans" to drive. If they go over that amount, they pay X number of dollars per mile over the fixed amount. OTOH, remember that the 50% share the agency gets is based on logistical stuff such as getting the rig rented and taking it over to the Ford or Chevy garage for the 10,000 mile maintenance thing. The "cost" of the maintenance comes out of your 50%, as does the commercial insurance required on such a rental. "Any" expense against the rig is your expense. So check out what your expenses against the rig are.

>> Factoring the rental income, 2nd home mtg interest deduct and tax deduction for depreciation, insurance, etc.   -  the picture was painted that it would basically pay for itself.   I can validate those numbers.  What I am unsure of is the resell value after 2-5 years.   Is trading in for a more attractive RV and continuing on a realistic proposition.
====
Your objectives, once again, would drive your decision. The program I was part of was aimed at the RV buyer that "wanted" a $75k RV, but could only afford the payments on a $50k rig. So this was a way to get the one they really wanted after 2 years. Those that were going to retire in 2 years or so found it a very good way to get the rig they wanted. After 2 years, they now have and would prefer a used $75k rig (when it was new) to buying a new $50k rig.

BTW, the program I was involved with allowed the owner to use the rig when it wasn't being rented. That would exclude popular holidays and such. I took mine off the lot about once a month and drove to Reno, Lake Tahoe, or the coast. This satisfied my need to hang around a good crap table, enjoy casino buffets, or camp by the ocean, and just "drive my rig".

So bottom line is if you are looking to get into a higher level rig and reduce the depreciation impact, these can be good programs. However, if doing it as an investment, I would not recommend it. Your best expectation would be that you would break even -- but then, you might not.

 

[Gary RV_Wizard]

After 5 years and no more than about 48,000 miles, a used Coachman 35 is likely worth no more than 1/3 its original MSRP. Figure about 25% of the original MSRP as a wholesale value (what you actually get in a trade - anything more is discount) and maybe 35% if you managed to sell it privately. If the mileage  is more like the 100k figure that Bob mentioned, the value will plummet if it is a gas chassis and merely drop severely if a diesel. By the way, a diesel will have a higher resale and better market demand, but also costs quite a bit more up front and costs more to maintain as well.

If you can buy the rig for well under MSRP, that gives you some cushion.

Ask how many days rental you can expect annually and whether her income estimates are based on getting all those days. If you are expecting to use the rig some of the time yourself, be sure to subtract your own days. Also remember that you have to schedule your own usage around rentals if you don't want to lose rental income.

Remember also that YOU are taking all the risk in this deal. The rental agency has no money invested and you are responsible for ALL maintenance and repairs out of your half of the rental income. You must still be able to make the payments if there are no rentals that month and the coach needed maintenance as well. Remember also that the agency is going to be performing maintenance and billing you for it. That's often income for them and they have no motivation to skimp on hours or parts in doing so. Probably good for the quality of maintenance but not so good for your bank account. Every time some little thing needs fixing, you will pay their technicians to fix it. Even if it is something you could and would generally do yourself, e.g. change a light bulb.

I'm not trying to scare you off, but want you to have your eyes fully open if you get into this program. Too many people seem to think it is a "free lunch" and get surprised when it is not.

Here's another reputable place that does this sort of thing - you might want to check there and get their take on a similar program. Innovative RV

 

[Alaskansnowbirds]

.....Factoring the rental income, 2nd home mtg interest deduct and tax deduction for depreciation, insurance, etc.  -  the picture was painted that it would basically pay for itself.  I can validate those numbers.  What I am unsure of is the resell value after 2-5 years.  Is trading in for a more attractive RV and continuing on a realistic proposition.   

Thanks again for the input.

If you rent the MH then I don't think you can use the 2nd home mtg interest deduction. If you're renting the MH then it's part of a business NOT a second home.

I think that is the way it works. Maybe Wendy can help.

 

[Ned]

But the interest is still deductible on Schedule C as a business expense.  Any business endeavor should be discussed with a tax specialist before entering into it.

 

[Wendy]

A motorhome is somewhere between a home and a vehicle. Renting out an RV is even more complicated than renting out a vacation home. The interest might be deductible as second home interest or it might be deductible as a business expense. Everything is going to depend on how much YOU use the RV versus how much it's rented out. Any money you get renting out the unit is going to be considered income. POSSIBLE deductible expenses would include depreciation, repairs, commissions to the people doing the renting. The expenses would need to be divided between the days YOU use the unit and the days the unit is rented out.

I'd sit down with a tax professional WHO HAS HANDLED THIS KIND OF ARRANGEMENT before doing anything.

Wendy