Thursday, March 10, 2011

Full-Time RVing?

A typical motorhome can cost anywhere from $100,000 to $250,000.  Some upper-end units can run $500,000 or more!  Do these make sense for average middle-class Americans?  Probably not.

UPDATE:  Read this article (in .pdf format) by a journalist who covered the RV business.  He became disillusioned after he actually bought an RV and realized how poorly they are put together and how the financing can bankrupt many owners.   He gives the industry 20 years, tops, before a massive reshuffling occurs.  Maybe a bit dramatic, but who knows?

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As I noted in my Good Sam Club posting, the Affinity Group owns most of the magazines in the RV world, the largest chain of parts, accessories, and service outlets, and very shortly will own the largest chain of dealers.  Oh, and they own the largest chain of RV resorts and both the Woodalls and Good Sam camping guides.

So it is not surprising that in the magazines they publish, they promote the idea of selling your home and going "full time" in an RV to "see America."  It is a lifestyle they promote and push, but it is not one that makes much sense, financially, and one than can bankrupt you.

One article that appeared in the Good Sam magazine begins, "We sold all my husband's junk and put my precious collectibles in storage, and set out to become full-time RV'ers!"  While this may be a funny joke, the resultant financial nightmare could be devastating.

Simply stated, for most Americans, the idea of owning a $100,000 vehicle is simply out of the question.  And that is the price of an entry-level Class "A" motorhome these days.  Even if you buy a cheaper model (which is not well-suited to full-timing) you have to throw in $20,000 for the "dingy" vehicle, tow bar, and all the accessories.

Granted, you could do it "on the cheap" with a 5th wheel trailer and a large pickup truck, but even then, you are talking $60,000 or more, which is a lot of money to spend on rapidly depreciating equipment.

And that is the first problem right there - depreciation.  These types of vehicles depreciate rapidly, like any other car, or boat, or motorcycle.  To sell them to middle-class Americans, RV dealers offer long-term financing of 10 years or more.  As a result, the depreciation chases the loan balance and the depreciation wins.  This same effect can be seen with boat purchases and in both cases, the owners end up "upside-down" or "underwater" on their purchase and cannot sell the RV or boat, which ends up getting repossessed.

So, Joe and Josephine middle-class sell their $250,000 home "up North" and buy a huge RV that cost nearly as much.  They think they can "afford it" because the nice man at the RV dealer got them into some financing that reduced the monthly payment to $1200 a month.  But at that rate, they are not paying down the balance on the loan very quickly.

And as I noted in my "hobbies run amok!" posting, the impracticality of full-time RVing quickly becomes apparent:

Frank and Shirley decided to buy a Motorhome and become RV'ers. Selling their home, they bought a fairly inexpensive Winnebago and decided to hit the road, full-time and "see America." They had camped in camper trailers before and read all the RV magazines, which promoted the "RV Lifestyle" and "full timing" in luxurious "Motor Coaches".

The first year on the road was fun. But they were spending more money than they expected. While they didn't have a mortgage payment or property taxes, they did have to make payments on the motorhome, keep it full of fuel, and also pay to camp somewhere nearly every night.

The fantasy sold in the RV magazines is that once you have your luxury motor coach, you can pull off by the side of the road, and park next to a pristine lake, and then wake up in the morning with the birds chirping, while your wife makes coffee over the open campfire.

Unfortunately, this is all a fantasy. In reality, you cannot simply pull off the road and park on someone's private land without permission. All the pristine lakes are spoken for, usually by vacation homes. And even if you could find such a spot, your motorhome would likely get stuck in the mud. And campfires? It takes an hour to start them, and making coffee is almost out of the question. Not to mention how smoky it will get your new rig!

So Frank and Shirley ended up staying in State Parks and RV Parks. The State Parks were OK, although Frank scratched the beautiful paint on his motorhome on a tree in one State Park. Why don't they cut down all those trees? It would make camping easier. On the weekends, the State Parks could get crowded with families and noisy children. Frank and Shirley stayed in their rig and watched satellite TV.

RV Parks were easier to get in and out of, as nearly every tree had been cut down. However, the row upon row of pads were not very attractive, and oftentimes, they'd end up parked next to rowdy campers who would build large fires and talk loudly all night. In the morning, Frank and Shirley would wake to find a litter of beer bottles and their shiny new rig dusted with campfire smoke.

They tried some of those new "RV Resorts" but found them to be hugely expensive. "For what we are paying a night here, we could stay in a hotel!" Shirley exclaimed. While the RV resorts were clean and full of mostly older, "full timers" like themselves, Frank and Shirley were chagrined to discover that their simple RV was looked down upon by the "Motor Coach" set. Worse yet, some resorts refused to let Frank and Shirley stay at all, as their coach was deemed "too old".

During a trip to an RV dealer for service, a salesman showed Frank and Shirley a higher-end motor coach. "You know, for the same payment as you are making now, I can put you in this coach!" the salesman explained. Frank and Shirley were only months away from "paying off" their old coach, which they had (smartly) put a very short term three-year loan on. The new loan would extend 12 years, and what little equity they had in their old coach would be swallowed up as the down payment on the new one. The smell of new leather and carpeting, along with their memories of being humiliated by the "Motor Coach" set in the RV resort was all it took. They signed the papers.

Excitedly, they set off for their favorite RV Resort to show off their new purchase. They were big-time now! When they arrived at the resort, however, they found that their mid-priced motor coach drew less attention than their inexpensive starter model. Although they considered it special and new, it was merely just another RV when parked next to the $500,000 and Million-dollar custom bus conversions.

You see, no matter how much you spend on a hobby, there is likely to be someone who will spend even more. Trying to impress people by purchasing things is a very silly thing to do. Only the shallowest of folks are impressed by your ability to sign loan documents. It takes no special talents to "buy" or own something, only a checkbook. Moreover, the people you are trying to impress are usually people you don't even know! What is the point of that?

Unfortunately for Shirley and Frank, it got worse - a lot worse. Their huge and expensive (to them) motor coach was hard to handle, and taking it to inexpensive State Parks was out of the question. It simply wouldn't fit. Even RV parks were problematic.

Frank started doing the math on the "RV Lifestyle" and discovered, to his horror, that they were going through their retirement income at twice the rate they were when they lived at home. To save money, they tried parking at Wal-Mart and Flying J parking lots whenever possible. "This is great", Shirley said sardonically, "We're spending twice as much as we did before, and now we're living in a truck stop!"

Now, to be sure, RV'ing wasn't a total downer for Frank and Shirley. There were occasions when they would wake up parked next to a pristine mountain lake and enjoy the sunshine and birds chirping - before someone in a neighboring RV would start their generator. RV'ing can be fun, but full-timing it was getting old, and costly. And Frank was getting old, too.

Since they had to have a car everywhere they went, Frank and Shirley had to tow one behind the motorhome. Driving this huge rig, with a car behind, was not much fun, as cars would weave in and out of traffic, and honk, and trucks would blow by, pushing their coach sideways with the wind. Setting up and taking down camp was tiring and difficult, particularly for someone pushing 70.

Then Frank got sick. It happens, particularly when you get old. They had to stay for a while in one place, while Frank went to the VA hospital. They found an RV park where they could get a monthly rate, which helped cut their costs. But now, instead of traveling and seeing the country, they were in effect, staying in a very small condominium in a very bad part of town. Once Frank got out of the hospital he found it hard to get in and out of the RV, climbing the steps. Setting up camp and stowing gear exhausted him. They needed a place to settle down.

Unfortunately, the RV was now worth less than what they owed on it. But the monthly payments kept coming. With their retirement savings almost gone, they could not afford to rent an apartment and make payments on the RV. When the repo-man came for the motor coach, they quietly handed him the keys.

As a lifetime Good Sam Club member, I get all the RV magazines, and I read all the hype about the latest and greatest (and larger and larger) motorhomes, costing in the hundreds of thousands of dollars. I also read, in the classified section, the ads for used RVs, with notation "Poor Health Forces Sale". Frank and Shirley's experience is not an anomaly, it is the norm.

We've seen, firsthand, in trailer parks, elderly people living in rundown motorhomes, too poor to move into assisted living, their coaches no longer worth anything to anyone, not having been run for months or years. We've also seen, firsthand, EMS rescue people have to break out the windows on such coaches to extract the occupants, who usually leave, feet first, in a gurney or body bag.

While RV'ing can be a fun hobby, the idea of spending your declining years in a motor home simply defies common sense and financial mathematics. There are some more economical ways to RV that might make some sense.

For example, Joe and Suzy have a travel trailer they keep in Florida. Such trailers, which are huge inside, can be purchased for as little as $20,000. Since they don't have an engine and drive train, they are inexpensive, and depreciate very slowly. They keep the trailer at an RV park on a golf course, and every winter, they drive South and spend several months in their "Florida Home". The RV cost them very little, and the monthly "lot rent" is less than a few days stay at a "Motor Coach Resort".

The only disadvantage to this model, is that while it is quite inexpensive, it also really isn't RV'ing in the sense that they are seeing the USA and camping out. It is just a cheap way of having a summer home - one that, if it blows away in a hurricane, you won't care too much about.
And yes, the story above is based on a composite of real people I have met over the years.   Does "full-time" RVing make any sense?  For me, I think not.  Why?  Because while you may not have to pay property taxes and utilities, you do have to pay for campgrounds,  many of which charge utilities to "full timers".  And then there is the cost of fuel.  Motorhomes rarely get over 10 MPG, particularly larger ones.  And if you really want to "See America" it is going to cost a lot of money.

If you move from place to place, the cost per night can be expensive - $30 to $70 or more.  Staying in one place for a month or more may be cheaper, but then again, you are not "seeing America" anymore, just the same old trailer park.

Many folks go back and forth between the same trailer parks, year after year.  For the cost of buying the RV and the monthly lot rent, they are approaching the cost of a summer camp, which appreciates in value, or at least holds its value, as opposed to the RV, which will be worth little or nothing in a decade.

The full-time lifestyle might be affordable and all if you are rich.  But chances are, if you are rich, you can afford to stay in nice hotels and not stay in campgrounds, even the nicest of which is still, well, a campground.

Economically, it often makes little or no sense.  But people talk themselves into it based on "monthly payments" and don't think about the impact to their overall net worth.

And that is the real danger of the "monthly payment" mentality of finances.  A salesman and a crooked bank can put anyone into any kind of loan deal, based on some pretty shaky financial assumptions.  And oftentimes, the poor sap who signs the papers ends up "upside down" on his boat, car, RV, motorcycle, or even a house (as we saw recently).

The way to avoid this trap is to look at the overall cost of the transaction, not the cost per month.  And then ask yourself if you can afford the overall cost.  If you buy a brand new $250,000 motorhome and decide to go "full timing" for 5 years or so, chances are, the motorhome will be worth $125,000 or less by the time you are done.

Can you really afford a $125,000 hit to your finances, particularly as you are contemplating retirement?  I know I surely can't.  Even if you are a millionaire, that is more than 10% of your net worth!

I think a good rule of thumb is, never buy a motor vehicle that costs more than 1/10th the value of your home.  If you live in a $250,000 home, then you shouldn't have more than $25,000 of depreciating motorized assets parked out front - preferably less.

And yet, as I have noted before, where we lived in Central New York, it is typical to see people living in $70,000 homes with well over $150,000 of motorized vehicles in the driveway - several cars, pickup trucks, a penis boat, jet skis, and a motorhome.  In 10 years, the house may be worth $100,000 or more, but the motorized vehicles will be essentially worthless.  And the people who own them will be mystified as to why they are broke - and resent those who are "rich".

But understanding Depreciation of assets is the subject for another posting....  perhaps the next one!

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UPDATE:  One reader claimed I was being unduly negative about Full-Time RVing.  But of course, they were coming from a discussion group that promoted the idea of full-time RVing to younger (50-60 year olds) people who are either thinking about it, or doing it.

I, on the other hand, live on a retirement island, and see firsthand what happens to the 70-year-olds when they can no longer RV.   Another  neighbor bought a $320,000 coach six years ago.  Her husband died and it is for sale now, for $104.000 and she owes $160,000 on the loan.  This is what happens.

The reader wrote:
"Our tentative plan is to sell our house and stuff, pay outright for a rig and live off a $50K pension.  Our ball park financial situation will be debt free (except for all the normal expenses) and coming out of selling our house with about $175K.  We are leaning toward a toy hauler and the ball park on that with a truck to pull it is $150K for what we have in mind. "
First of all, $150,000 is an awful lot of money for a towable and truck.  Even a loaded truck can't run more than $35,000 if you shop around.  And a used one, even less.   That still leaves $100,000 for a trailer?  What planet are they on?  How could a toy hauler and pickup cost $150,000?  It makes no sense.

Second, that $175,000 that they get for their house is their nest egg.  To blow it all on one depreciating asset that will depreciate down to NOTHING in about 10 years, is not very smart thinking.  But it illustrates how the middle class thinks these days - or fails to think.  People who have earned weekly paychecks their whole lives - and have pensions - have no idea how to handle large sums of money, other than to spend it as fast as possible.

In ten years, when RVing is getting old - and their RV is old - what do they plan on doing?  Like Frank and Shirley (update:  Frank is now dead, Shirley is trying to survive on Social Security), they can't afford to buy another $150,000 rig, as they already shot their wad.  Their existing RV and truck will be worth little to nothing.

So where does that leave them?  On the street is where.  They no longer have their "nest egg" to buy a house.  They would have to RENT, and be able to afford the rent.   $50 grand is not a bad pension (the median income in America) but to have no savings?  Kind of risky.

And there is an end-game to full-time RVing.  Do you really expect to be RVing in your 80's or 90's?  Of course not.  So what is your plan for the end-game?  When do you sell the rig and where do you go?

I would suggest, instead, that they buy a cheaper rig.  Used toy haulers can be had for $25,000 and a used pickup or large SUV can be had for about the same amount.    In five years, both vehicles will be worth about half what they were once worth.

On that budget, they could still bank $125,000 for the contingencies in life (like living longer than planned).

But also budget the cost of RV parks or State Parks, fuel, maintenance, and the like.   The costs of RVing can creep up on you, very quickly, particularly at 6 miles per gallon.  If you want to travel a lot, fuel and park costs will be huge.  If you want to stay in one place for long periods of time, the cost of fuel will be minimal, and you can get monthly rates on lot rent.

But, if you are going to stay in one place for a long period of time, why not just rent or buy a home?

The point is, DO THE MATH.  Don't let the industry do your thinking for you.  The number one RV dealer in the country, also owns all the RV magazines, guides, clubs, and parts stores.   Of course they promote the idea of "full timing" - just as GM promotes the idea of owning a Chevy.

RVing can be a lot of fun, on a budget.  RVing is no fun when it sucks up all your money and leaves you penniless.