Everything in life has risk. In driving to the store you risk having an accident, as well as your car breaking down. You cannot eliminate all risk in life – even if you sat in a chair you whole life and never moved, a meteor could land on you. So the key to a successful life is trying to minimize risk. And, in buying RV parks, there are certain strategies that allow you to hedge your risk and mitigate it.
Due Diligence
Benjamin Franklin once said that “Diligence is the Mother of Good Luck”. Franklin was 100% correct. You make your own luck with applying proper due diligence. But what does that mean? It means that you start with a blank sheet of paper, and you prove out the revenue and expenses based on third party statements (like utility bills) and three bids on any item that is not included. It means verifying that the permit is valid and all inspections are correct. Essentially, due diligence is the mechanism that removes all doubt of being deceived by the seller.
Understanding the Business Model
Before you buy an RV park, you must understand well how the business works. You can attain this knowledge through the RV Park Investing Home Study Course, available at RVParkUniversity.com, or at least by gleaning what you can from the internet. But regardless of how you obtain the information, you should never invest in any RV park until you know the drivers to profitability and the potential risks to protect against. It is not enough to say “I want to own an RV park and I have the money for the down payment”. You must first earn the right to invest in an RV park by immersing yourself in the business model until you are a competent investor in that asset class.
Having Reasonable Reserves
If you have $100,000 to invest in an RV park, you would never want to utilize that entire amount in your down payment. You would want to hold back significant reserves for a rainy day. Real estate is a capital-intensive business, and you have to be prepared to step in with your check book when required. In addition, make a list of where else you can get short-term capital in a worst-case scenario, such as friends and family or other investment holdings. You can never be too prepared for the worst case scenario.
Having a Plan B for Every Risk Issue
One reason that commercial planes crash so rarely – while private planes crash all the time – is that the big, commercial jets have multiple back-up systems to every emergency. If the engine goes out, they have one or two more that can safely get the plane home. If the rudder control brakes, they have a back-up control. You need to be like those commercial jets and have multiple back-ups to every potential problem. List out what those potential risks are, and then brainstorm a couple plans for each one.
Using Reasonable Financing
Never get in a financing bind. We see that all the time with RV parks. Here’s the most common scenario. You buy the RV park with seller financing that runs for three years. Two and a half years in, you try to get bank financing and find you can’t get it. You have been trapped by the seller, who will now foreclose and take your down payment. Any loan you obtain should be at least 5 years in length, which gives you an acceptable amount of time to improve the property, season the financial statements, and obtain a real loan. In addition, when you obtain seller financing, still run it by a bank to make sure the property is “bankable”.
Conclusion
Buying and operating an RV park does not have to be a scary situation. You can minimize the risk if you just use these basic concepts and work smart. Let that wild animal jump on some other unsuspecting buyer – you can defend yourself from danger if you work at it proactively.
