Originally Posted by
Baa_Baa
I think people are indoctrinated into the classic property investment model of, buy a property with debt and rent it out, hopefully covering all expenses and making a profit.
RV's are property businesses, but they aren't like that simple model. Lets make it personal, you buy an initial property with bank debt, but instead of just renting it out, you convince your tenant to pay you at the time of sale, the value of the property at ~15% discount to it's market value (money in the bank) and you guarantee you will pay back that money less 20-30% when they leave. So you have that money, interest free, until they leave.
The next property you build/buy, is with the money your first tenants 'loaned' to you interest free. And when you 'sell' the right to occupy that next property, you do so at a margin to what it cost to buy or build. And so on and so forth.
You'd only get more interest liable money from the bank if you wanted to accelerate the investment in building or getting more property, which as above, is rinse and repeat, but obviously more costly as you have to pay interest on that bank loan. In other words, the RV model is still sustainable without bank loans, if they don't want to accelerate development or land bank.
In the meantime, your tenants pay you rent as well! They wouldn't 'buy' (ORA) the property AND pay rent, unless there were some wrap-around services, whether they need it, or not, or may need it sometime. So they not only pay you for the property, but they pay you rent for it as well.
So the more properties you fund through your 'tenants' deposits and rent, the more properties you have and tenants and funding (loans) and rent, and growth in your properties assets increases and this goes on and on ad infinitum. Even if the costs to provide the wrap-around services that the tenants may or may not require, exceed what the rental income is, is largely immaterial. That is the fringe around the core property and growth business model. Call it a loss leader, or whatever.
One day your tenant leaves. Your rental income stops, but they or their estate pay you by deduction from the amount you pay back of their 'loan', to renovate the property (DMF) before you sell the right to occupy again, and get the next 'loan' and rental income from it. Then, when you sell the property to the next person, you pay the original tenant back the 'loan', less 20-30% retained margin.
This is nothing like a standard property investment company, there is one huge difference. The power of the float, which is the no interest payable 'loan' from the residents, and the leverage that comes from that.
As an investor, this is what you're buying into and hope to see continue to grow over time, the growth in property assets and income streams, funded by no interest loans that sustain various margins. When the market wakes up again and realises RV's aren't traditional commercial property investments and have demographic tailwinds for decades to come, we should expect continued growth and substantial re-rates in the market valuation of the companies SP.