How to Structure a Preferred Return in an RV Park Fund

August 25, 2026 · RV park investing, explained

No restrictions, via Wikimedia Commons

A preferred return decides who gets paid first when an RV park fund distributes cash. Get the structure wrong and you could end up waiting years behind the sponsor for a check that never comes.

What is a preferred return, exactly?

It's a threshold return that investors receive before the sponsor gets any profit split. If the deal is structured with an 8% preferred return, investors are entitled to the first 8% of annual cash flow on their invested capital before the sponsor collects a dime from the profit share.

What's a typical preferred return rate for an RV park fund?

Most RV park and outdoor hospitality funds land somewhere between 6% and 10%, with 7% to 8% being the most common range. Ground-up development deals sometimes run lower because early cash flow is thin, while stabilized, cash-flowing parks can support a higher preferred return.

Is the preferred return guaranteed?

No. This is the part new investors misunderstand most often. A preferred return is a priority in the payout order, not a promise. If the park doesn't generate enough cash to cover it, investors don't get an 8% check that year. They get whatever cash is available, and the shortfall usually accrues to be paid later.

What happens if the fund can't pay the full preferred return in a given year?

In most deals, the unpaid amount accrues and carries forward. So if investors are owed 8% and the park only distributes 5% in year one, that missing 3% typically gets added to what's owed in future years, ahead of any sponsor promote. Read the operating agreement to confirm this is how the deal is written, because some sponsors structure it differently.

Does the preferred return compound?

Usually not, but it varies by fund. Most RV park deals use a simple, non-compounding preferred return, meaning unpaid amounts accrue at face value without earning interest on top of interest. A compounding preferred return is more investor-friendly but less common, since it costs the sponsor more over a long hold period. Ask directly which version you're being offered.

How does the preferred return interact with the sponsor's promote?

Once the preferred return is fully paid, including any accrued shortfall, cash flow moves into the profit split, often called the waterfall. A common structure looks like this:

• Investors receive their preferred return first, up to the stated hurdle
• Remaining cash splits between investors and sponsor, commonly 70/30 or 80/20
• Some deals add a second hurdle, where the split shifts further in the sponsor's favor above a higher return threshold

The preferred return only matters if the underlying deal produces enough cash flow to pay it. A generous preferred rate on a park that's overleveraged or overpriced is worth less than a modest preferred rate on a park with real margin for error.

Still stuck?

If you're reviewing a specific term sheet and can't tell whether the preferred return is compounding, accruing, or at risk of never catching up, ask the sponsor to walk through a real cash flow scenario, not just the pro forma. Invest With Zac breaks down these structures deal by deal if you want a second set of eyes before you wire funds.