The Buying Equation

The first of the year has found the global markets roiled with uncertainty. Many American households are enjoying a "tax cut" with significantly lowered energy costs. But on the other side of the coin, many folks' investment and retirement portfolios have been taking a beating.

The RV business is cyclical and can be deeply effected by the cost of fuel and, as an non-essential luxury item, recessions in the economy. The US has been on a very slow, but consistent expansion of the economy since the 2008 recession. Historically, some economists say that expansions of this length are rare and the time is drawing near for a slowdown. On the other hand, there's a group of economists who think that this long expansion will continue due to its very nature of growing slowly.

The consensus opinion of leading economists is that there's not probably much in the domestic landscape that would cause a true recession, but one does need to be mindful of the slowdown in China and the softness of the European economy. Now that economies are essentially globalized the US can be effected by poor performance elsewhere.

Amidst this macroeconomic uncertainty, there's two bright lights -- the low price of gas and diesel and low interest rates. Here in Colorado we've been seeing diesel prices pretty consistently under $2.00 dollars a gallon. Given a slackening in world demand, new-found abundance of resources, and general oversupply, it's reasonable to expect that prices will remain pretty affordable for the next few years. . .if not longer. And given that the cost of fuel is a huge variable in RV travel budgets, this is very welcome news.

The cost of money remains to be attractive with interest rates at a generational low and little concern that they will rise. Lower rates can extend purchasing power allowing you to consider product upgrades or a step-up in class while keeping monthly payments within your budget.

Behind buying a house, the purchase of an RV is probably one of the larger financial decisions many of us make. Is buying an RV a good investment? It depends how you're measuring that investment. A few years ago I sat around a table with several venture capitalists who I worked with in my public company career. Typical of VC's they mercilessly poked at me to uncover the soundness of the economic value of my decision to buy a motorhome. What about depreciation? Cost comparisons to other modes of travel? On-going maintenance? The thrust and parry went on for a few minutes until I drew the debate to a close with, "I'm simply converting capital to memories." One of them paused, looked at me, smiled, and then said, "that makes perfect sense."

Over the years I have bought and sold a good deal of residential and commercial real estate properties. Some choices (like primary and second homes) were more emotionally driven than others (income and appreciation generation properties). In real estate calculations the expectation of a rise in equity is always a key factor. An RV purchase is like a car where there is an expectation of depreciation. In the face of purchasing a known deprecating asset how does one arrive at a thoughtful decision?

Many buyers narrow the depreciation gap by buying a used product. It can be a very good strategy, but the older the unit the higher the maintenance risk becomes. Finding a unit in the sweet spot of price and age takes careful thought, research and experience.

Buying new gets you a reasonable period of warranty coverage and state of the industry design and technology. These days it's amazing how much the underlying components in an RV change within 3 to 4 years. Buying new can make a lot of sense especially if you plan to keep your unit for 5+ years. Yes, it will have depreciated, but that equates to the useable economic life and enjoyment value you've consumed.

And then there's the "exit strategy." Just like home buying, we are all prone to get tangled up in the romance of features and floorplans. And why not? We're the ones who are going to be using them. However, if but for a few brief minutes, put your investor hat on and think about resale. Is this a flexible and livable floorplan? Is this a popular model? Is it built with materials that are durable and will look good after some years of use? Sometimes looking at a product through someone else's eyes will cause you to think of things like, "we'll never use that upper bunk, but it might be attractive to a family in the future when they're looking at this as their first RV purchase."

Through calculation, evaluation, and rationalization we all get there in different ways. Often the hardest intangible to qualify is the value of the RV experience. For me, the most visible measure appears on my screen savers to which I am always adding photos of our trips. The collection continues to grow and there are times where I'll sit at my keyboard and not tap on any keys to watch the pictures dissolve by. We've been to a lot of great places, had some fantastic experiences, and plenty of good memories. And looking at the "evidence" that has proven to be a very good return on investment.