Tuesday, May 24, 2011

Cost Caluclation of Full-Time RVing.

Is it cheaper to live in a home or go full-time in an RV?  Lets crunch some numbers and find out.

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?

* * * 

A reader asks:
"Is it cheaper to live in an RV or a home?"
That is an interesting question, and in a previous post, I opined that full-time RVing is not such a good deal.

But of course, it all depends on the type of RV you buy, how you use it, and what kind of home you are comparing it to.  But overall, I would still say that full-time RVing is not a good deal.  If you want to "see America" by RV, then go ahead.  But don't kid yourself that you are "saving money" by doing so.

To begin with, as I noted in the home as an investment posting, when you do the math on any home purchase, it turns out a home is not a stellar investment over time.  What with the loan interest, insurance, and property taxes, as well as maintenance, you end up getting back only what you paid in, over the years, as the home appreciation (in a normal market) ends up equaling all those expenses you paid in, over time.

So, if you spend $100,000 on mortgage, taxes, insurance, repairs, etc., over the years, chances are, when you sell the home, you will get that $100,000 back - but not much more.  Not a very good "investment" is it?  But - and this is a big but - you get to live in it, basically for free, over time.

But a motorhome, on the other hand, doesn't even pay that back.  If you buy a $100,000 motorhome, which is considered a pretty plebeian coach. in five years it will likely be worth $50,000 or so.  And if you plan on going "full time" in an RV, you will likely have to spend some money to buy a quality and roomy coach.  It just won't work very well in my 17-foot travel trailer.

So for a $100,000 motorhome, you might be looking at $833 a month in depreciation over five years.

If you finance the coach, the monthly cash-flow is pretty significant, depending on how much you borrow.  If you put 20% down and finance $80,000, the payment could be $900 to $1500 depending on loan term (number of months) and interest rate.

So right off the bat, we see that there is a huge depreciation hit on the motorhome - about 50% every 5 years or so, which is typical for most motorized vehicles.  Trailers may depreciate a little less, but the tow vehicles will follow that same curve.  Of course, you can buy an older coach or trailer, but the maintenance costs would be higher, and of course, eventually there reaches a point where a coach or trailer is just worn out.

So while the Monthly Payment on a motorhome might be less than on your house, in the long run, the big dent to your net worth is what kills you.  With a house, at least you have an asset you can sell to downsize from.  Downsizing to a motorhome merely squanders the money you had in the house.

In addition, there are other costs associated with an RV, including the staggering fuel costs and the staggering RV park fees.  Fuel is a big issue, as most of these rigs get under 10 mpg, usually far under.  Some Diesel coaches get marginally better mileage - but the coaches cost far more. And oftentimes, the delta in price is more than enough to pay for the difference in fuel costs.  So there is no easy work-around here.

If we assume driving 5,000 miles a year, which is low, and 10 miles per gallon, which is high, that works out to 500 gallons of fuel a year, which at $4 a gallon for diesel, is about $2000 a year in fuel costs, or about $170 a month.

Of course, you could drive less, but that defeats the purpose of "full timing" in the RV, right?  If you stay in one place in an RV, you are not full-timing, just living in a really crappy trailer park.  And unfortunately, this often happens to some folks, as they get older, run out of money, and run out of options.

And RV park fees are the other side of this coin.  If you travel a lot, which is the point of RVing (to "See America!" - right?) then you end up paying nightly or weekly fees, which can be as high as $50 to $75 a night in some parks, or as low as $20-$50 in State Parks.  If you want to plant yourself in one place for a month at a time, you may be able to get a monthly rate as low as $400 to $800 a month, which saves some money, but again, the longer you stay, the less you are RVing and the more you are just living in a trailer.

If we assume a mixed use of monthly stays as well as some traveling to parks and destinations, I think we can assume about $600 a month in RV park fees.

The net result is, the cost of fuel and the cost of RV spaces in campgrounds ends up being hundreds of dollars a month - perhaps as much as $800 a month - far exceeding your utility costs at home and more than enough to rent an inexpensive apartment.  And this is in addition to the monthly payment on the motor coach, if it is financed ($900-$1500), or the deprecation ($850) if you paid cash, and you are looking at cash-flow costs as high as $2300 a month or actual costs as high as $1600 a month.  So in terms of actual costs, you can end up spending more living "on the road" that you would staying at home, depending, of course, on what kind of home you have.

But many people do it, some convinced they can afford it, others who actually can.  But yet others are suckered into the concept, like our reader, who may think that this is an affordable "alternative lifestyle" because the monthly cash-flow seems smaller than the cost of their home.  But once on the road, they realize the costs are about the same, if not higher.  And their home had value that held, while the motorhome hemorrhages value every day they own it.

Eventually, they realize it is not a sustainable lifestyle, and end up selling the coach for a fraction of what they paid for it - if they can even get what they owe for it.

In today's economy, there are a lot of "distress sale" homes available in places like Florida.  Before you think about living in an RV as a lifestyle choice, I would investigate buying a home, condo, or park model instead.

We plan on traveling to "see America" as well, but I am thinking that a bus motorhome full-time might not be the answer.  If we did go that route, we would look for an inexpensive coach (with no slides) to use for the trip, and then sell it afterwords.  But I think that renting a cottage in Nova Scotia or New York, or Vermont, or wherever, for the summer, would be just as much fun, if not more so, at a much lower cost.  And driving a smaller car would be a lot more fun that wrestling a big rig bus...