RV Park Investing Newsletter

This month we will be celebrating Labor Day. Of course, we’re not sure what that’s actually a celebration of: the concept of labor, or to mark an important event in the unionization of laborers. Most Americans don’t know either. But they are perfectly happy to have a three-day weekend to go grab their RV and hit the open road. The proliferation of holidays in the U.S. has been fantastic for the RV park business. There’s virtually a couple every month. This simple fact frustrates employers but bolsters occupancy at RV parks across America. It doesn’t matter what many of these holidays mean to many RV park owners, only that they increase revenues on a regular basis. Let’s hope they add more!

Negotiation to purchase an RV park is a delicate process. You want to pay as little as possible, but still must get the seller to agree. And in many cases, part of the process is simply to convince the RV park owner so sell at all. So how can you be a master of RV park negotiation – what are the tips that can make you a great negotiator rather than just an average one?

Think win/win

In over 20 years of buying RV parks, we have learned that you can’t force owners to do anything. They don’t need you. They don’t need to sell. So the only way you call ever be able to get a deal done is to think “win/win” which means basically that the buyer and seller must both be happy at closing. The alternative to win/win is called win/lose, which means that one of the parties feels taken advantage of at closing. While that might work with sellers facing foreclosure or some other calamity, most RV park owners have no debt and no sense of urgency. You can’t back them into a corner when the room is round. So don’t try. Instead, adopt a win/win attitude in which everyone comes out ahead.

Be consultative in approach

As long as you’re devoted to win/win, why not take that to the next level and look at yourself as a consultant to the RV park owners – helping to ensure that the deal goes smoothly and watching out for his interests as well as your own. This totally confuses the seller, as they are unsure who’s team you’re on. But at the same time, it promotes the fact that you are a win/win advocate and will make them more willing to reduce the price during due diligence, since they will trust you more. Instead of saying “this RV park is really rough” say “this RV park needs 6 potholes repaired, 4 power pedestals, a new pool pump, and 9 trees trimmed,” This makes you seem like a straight shooter who really knows the facts.

Back up all numbers with facts

We have found that all RV park sellers respond extremely well to honesty. And the best way to prove to the seller that you are not making things up is to prove them with facts. Get bids on each item that needs to get fixed, to prove your point. Talk about basic assumptions of occupancy going forward. Talk in facts and figures and not conjecture. If you walk up to someone and say “your net income seems to be $84,000 per year” they will not respond as favorably as saying “your average revenue for the past three years has been $146,760, and your average expenses have been $62,710, for an average net income of $84,050”. When you sound like an expert, you will be treated as such.

Learn everything about the market

Since it’s your job to be an expert, don’t forget to be an expert on the market. Research other comparable sales, as well as talk to other owners about their occupancy and past performance. See what the attractions are that make the customers come in, and if those are increasing or decreasing. The ability to talk intelligently about the market is a huge turn-on to most sellers, who then think that you really know what you’re doing and might make seller financing possible.

Bonding

One great way to be an expert negotiator is to simply spend time with your seller via phone or in-person. People work better together when they like and are comfortable with each other. It’s not a scientific process – some people you simply like and some you don’t. But the very act of getting comfortable with each other makes talking business points much easier. Best way to open the door to bonding? Ask the seller “so how did you come to own this RV park?” The answer may take two hours.

Have a walk-away price

pay and at what point you give up. While you can try to get the RV park under contract at a lesser amount, it is essential that you have a “walk away” price – basically the price in which you won’t go forward. When you know this price, you will convey it with your body language and other subliminal clues. The seller will pick up on these and know he’s right at your ultimate limit. If you don’t know at what price you’ll quit, you won’t be able to send these clues to the seller, and might end up in a situation where you’ve tentatively agreed to a price that won’t actually work.

Never push the seller

Negotiations are always fragile. Never try to push the seller. You will immediately lose your consultative label, as well as their belief in your win/win manner. You might even blow your bonding. If the seller needs more time, give it to them. Do not issue ultimatums. If you let the seller make the decisions at their own pace, you will typically come out on top from the negotiator who tries to be “bossy”.

Always be timely

This should be obvious to anyone, but some RV park buyers blow their negotiations through the simple act of not being timely. They show up late to meetings, or call an hour later than they promised. They say they sent the contract out that day when the postmark shows the day after. These type of minor issues send the signal to the seller that you are not to be trusted, and this could have a huge impact on their opinion of your honesty. For example, if you are always late and then need an extension to the financing contingency, the seller is going to think “why should I – they probably still haven’t even applied to the bank yet?”

Conclusion

RV park negotiation is an art form, but one that you can learn rapidly if you just use common sense. Forget what you’ve read in negotiation books from the bookstore – the truth is that the win/win method is king and the more you can be on the seller’s team the better the deal always turns out for you.

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Sam Zell has the unique honor of being the largest owner of RV parks in the U.S. What makes him truly famous is that he’s also been the biggest owner of office buildings and apartments, too. The reason he’s been so successful is his ability to see everything as an algorithm of risk. His general rule on real estate is that “if it has low risk and high reward, you always buy it, and if it has high risk and low reward, you never buy it”. His new book “Am I Being Too Subtle” came out in bookstores a couple months ago. And it’s a terrific read on his basic principles of business and real estate. If you have some time and want to learn some very interesting viewpoints on life and business, then this book is highly recommended.

RV customers want to be entertained. They are staying at your RV park to spend time with friends and family, to commune with nature, but also to do fun things. And the bigger your list of entertainment options, the longer they’ll stay with you – and the more likely they’ll come back. So what are some great venues you can create for your customers?

Pavilion

This is an excellent amenity for a number of reasons. It can be used virtually year-round, it offers protection from rain and sun, and it keeps the nature in. Any activity that your guests can dream of is appropriate for a pavilion. You can build these for as little as $10,000, and they are a major fixture at most RV parks. They also do not require a very large footprint of land and have no operating costs, besides sweeping and painting periodically.

Outdoor grills and fire pits

These are another amenity that cost very little but have huge bang for the buck. You can sit by the fire, make smores, roast hot dogs – outside fires are the very epicenter of most stories of great family experiences. You can build a professional-quality fire pit for $1,000 or so. Many RV parks have several of these.

Outdoor games

All you need to build exciting outdoor game venues is a mowed field and some basic equipment. The most popular of these are volleyball, horseshoes, basketball (which requires a paved or concrete court), and shuffleboard (also need a paved surface). None of these is too difficult to provide, and the return on investment is enormous in terms of happy customers.

Fishing lake

You either have this or you don’t, but if you have a body of water (or can create one by damming up a creek on your property) you should make full use of it. Clear a large expanse of the shore line for those who like walking up and looking at the water, as well as a pier for fishing. Install some benches for those who like to sit and reflect. Stock the water with fish to be caught. This is not a cheap amenity to add, but a big deal for many RV users.

Game room

You can create this feature – if you don’t already have an available area – by buying a pre-fab building or a double-wide mobile home, or building it with a concrete floor and a metal building. The top features for a game room are 1) pool table 2) foosball table 3) pinball machine(s) and 4) ping-pong. Only a pinball machine requires much maintenance, and you can buy these on the used market for under $1,000. They are terrific amenities that are fun for people of all ages.

Snack shop

Often part of the office or game room, this is an area in which guests can buy simple snacks such as chips, candy bars and soft drinks. In some RV parks, this feature is provided via vending machines, and in others it’s the RV park employee who sells them. Be sure to provide tables and chairs to eat on and some background music.

Swimming Pool

This is a landmark amenity, but is very expensive – more than everything else on this list combined both in initial cost and maintenance expense. Before you build a pool, ask yourself “how much of the year will this be used and how many kids really stay here?” If you RV park is in the north, it might only be warm enough to use it a few months of the year. However, if you are in south Texas, the swimming season might be 9 months. This is an amenity that is used about 80% by kids (or adults who kids drag along) and if your normal customers are just adults, it’s unlikely that it might get much use at all.

Splash pad

This is a new take on the concept of water recreation. It’s a paved surface that shoots water into the air, like a fountain, allowing people to get wet without jumping in a pool. It’s kind of like a water park without the pools. It’s also much cheaper to build (around $10,000) and to operate. It’s an effective alternative to a swimming pool that many people might actually like more.

Playground equipment

The rules regarding playground equipment have changed dramatically over the past decade. You will have to have cushioned “fall zones” under any equipment over a certain height. The most popular playground items are slides, swings and jungle-gyms. Commercial grade, they cost around $2,000 each, including the fall zone. They have very low maintenance costs.

Mini-golf

This is a great activity for all ages, but is very expensive to install unless you are handy and can do it yourself. A professional course can cost $10,000 per hole to build, but some RV park owners have built them for a fraction of that amount using their own staff and some creative thinking. All you are talking about it a concrete slab covered in astro-turf, after all. You can even theme the holes to local attractions.

Picnic area

All you need are some picnic tables (commercial grade ones cost around $1,000 and up) and a mowed area. While being among the least expensive amenity on this list, they are also one of the most used. If you do not have one of these, there is no excuse not to do so immediately.

Conclusion

The majority of RV park users are there for entertainment – bonding time with friends and family. They want activities that are fun and inclusive. The good news is that the very items they want are, for the most part, inexpensive and easy to maintain. Could you add some of these to your existing RV park?

A recent news story on CNBC tells it all. Sales of RVs are set to be the highest in U.S. history this year. And the trend continues across Europe, as well. Consumers are loving the special attributes of RV travel which include family bonding time and sensible cost. This is the 8th straight year of increasing RV sales in the U.S. Of course, the more RVs on the road, the higher the RV park occupancy. With 10,000 Baby Boomers per day retiring in the U.S. – and millennials enjoying the simple throwback to a simpler travel time – this pace is not expected to diminish for years. It’s a great time to be in the RV business!

Some RV parks have started adding decorated and furnished campers to their offerings, that can be rented by the night. These are far less expensive than traditional “park model” structures that can cost around $30,000 – some these nostalgic trailers can be purchased and renovated for $5,000 or so. Rentals can run $100 per night and up. There is a new interest in “glamping” which stands for “glamour camping” and you can market these units on such websites as VRBO. If you can’t afford to add park models to your RV park, have you considered retro campers as a way to reach the burgeoning market for overnight stays in RV parks?

Bad things can happen to good people. But RV park valuations should never go wrong if you’ve used good due diligence techniques coupled with adherence to facts and sensible analysis of risk. So how can you avoid making a mistake when valuing an RV park.

Look at historical data and average it

A smart RV park buyer listens to nothing but facts. You must look at the big picture and not just one year’s performance. Never let the seller convince you that you can simply take this summer’s revenue and multiply times four. Or take the expenses in December and multiply by 12. The truth is that you need to see the year-over-year performance since that’s exactly what matter to you with a 15 to 30-year mortgage. Averaging past performance is absolutely essential.

Normalize numbers

Take out one-time cost or revenue events, as these will make your numbers unfair one way or the other. If the RV park owner bought a pick-up truck for the property for $30,000 last year, that does not mean that you will be doing that every year. You will need to look at these type of items and remove them, while at the same time adding in a reserve for these purchases at the intervals in which they occur. This also holds true for one-time revenue events like a big attraction that happens every few years. Don’t let these one time items make your think that they are recurring as it will inflate your revenue or expenses unjustly.

Don’t treat seller’s information as straight fact

Remember that the seller is trying to do just that … sell. They are not fully on your team, as nice as they may be as humans. As a result, you can never take what they give you as straight fact. You have to double-check everything with the actual provider, or with three bids. For example, if they say the water bill last year was $18,000, that’s interesting, but you are going to call the water department and get the real costs for the last three years. Maybe it is $18,000, but it might also be much higher (or lower). Many sellers mean well, but they are also trying to show things in their best light (and that light is not in your best interests).

Do your calculations at least three times

We like to run our numbers at least three times. Once on the front end (just as a ballpark), then a deeper dive using computer modeling (our official version) and then one more time by the bank that is doing the financing, or the appraiser who values the park for the loan. If you are using seller financing, you may want to hire someone to run the numbers for you just to make sure you did not make any math errors or used poor judgement (you might want to have an appraisal done even though not required, etc.). You can never run the numbers just once and move on. That’s a recipe for disaster.

Understand your worst case scenario

All smart buyers should at all times maintain a grasp on the “worst case scenario” – the situation in which everything possible goes bad all at one time. The most common of these would be a significant loss in business in a single year. You should know what the net effect would be of an occupancy decline of, say, 25% to 50%. You should know at what point the loss in occupancy would render you unable to make the monthly mortgage payment and by how much. You should also know what the total would be and how much savings you would need to counter that impact. The world is filled with risk (look at Houston ad Hurricane Harvey) but smart buyers have quantified the risk and figured out Plan B if it was to occur.

Think of ways to mitigate risk

As important as knowing the risk is giving serious thought as to how you can reduce that risk and what the plan would be to deal with it. Every possible thing that scares you should be converted into scientific numbers and plans of action. Look at what happened to US airways flight 1549 in 2009. The engines went out and the pilot, Sully Sullenberger, had already thought through that scenario and safely landed the plane in the Hudson River.

Conclusion

There is absolutely no reason that you should ever have to risk your capital on the unknown. You should convert everything into science and remove that element of worry from your RV park purchase. You can never totally eliminate risk, but you can hugely mitigate it.