All RV park deals begin with a signed contract. But before you can have that written agreement, a price must be decided. In this RV Park Mastery podcast we’re going to discuss how to come up with that initial offer and why so many people can’t get the ball rolling in this regard. Too much thought can lead to “paralysis by analysis” and too little can lead to an endless stream of contracts cancelled and time wasted.
Episode 49: A Guide To Making Offers Transcript
Warren Buffett once said, "Without passion, you have no energy, and without energy, you have nothing." That was all fine and well for business, but with RV Parks, there's a different starting spot, and that's making an offer, this is Frank Rolfe, the RV Park Mastery podcast. We're gonna be talking all about making offers on RV parks, let's first understand the system. Here's how the system goes if you wanna buy an RV park, you have to make an offer, you and the seller have to then put together a contract, at an agreeable price, with agreeable terms, you each have to sign it, and then the contract plus earnest money goes to the title company, and then you have an actual live deal, so the very start, of that process, is in fact the offer, and the key to the process, the whole reason you're going through that process, is so you can control that deal, there's still a lot more work to do after you make the offer, even once you put it under contract, you're gonna be doing due diligence on it, and financing, you're gonna be looking to all kinds of things, looking at the numbers, the property, doing third party reports like phase ones, all kinds of things to do and consider, but again, without that initial offer, nothing is set in motion.
Also, remember that you have several outs in any RV park contract, if you've written it properly, you only wanna sign a contract that gives you the right to cancel, at the end of a due diligence period, and again, if it's not going to be seller-financed, there needs to be a financing contingency, again, giving you the ability to get out. Now, why is that important? Well, because many people get so wrapped up, so terrified of what would happen if the seller accepts the contract, without acknowledging that accepting the contract is only the beginning of the process, and you still have one or two safety valves, ways to exit the deal if in fact, you don't like it. So if you tie something up, do the diligence to find that you really don't wanna buy it after all, 'cause the numbers really don't pan out, or you don't like the market, you still have the freedom to do so. The offer doesn't bind you, the offer is merely the start of the process, you can worry later about whether you wanna buy it or not, you can worry later about canceling, but the key is you've gotta get that offer to get it started.
The bottom line is there's really no risk in tying things up as long as your contract gives you the ability to cancel during due diligence, and if it's not seller-financed, the ability to cancel during financing, as long as you have those things covered, then tying it up should not be a source necessarily of undue caution. So, that being the case, how much do you offer? If you have to make an offer to start the process, how do you make an offer?
Well, the first thing you do, is you've got to run some basic numbers, you've gotta figure out what the revenue is of the RV park, and the expenses, and the net income, and based on that, by applying a cap rate, you can then derive what you feel is the fair and appropriate offer. However, remember that you're not binding yourself necessarily to that number, so you're throwing out a number based on everything you have at hand, which is typically given to you by the seller, but you don't know for a fact that that's how things are gonna pan out once you get into due diligence, and really start reviewing what they have. So it's not in the case that whatever your initial offer is, that's it, you're stuck, but at the same time, you don't wanna be tying things up that are clearly stupid. If you look at the RV park, if the RV park has a net income for the past year of 50,000, then it might be worth half a million dollars, might be worth a little more, a little less, it is sure not worth $2 million. So don't be tying up things with ridiculous cap rates, but if things are within the realm of possibility, then you can go ahead and make the offer and try and tie them up, now let's go over how that process works.
Probably everyone is familiar with the basics of negotiation, if you're not, just turn on your TV, at any time, to the History Channel, watch an episode of Pawn Stars or American Pickers, 'cause that's all you see, is negotiation after negotiation, people bring in products, they wanna sell at the pawnshop, there's a back and forth as to the value, American Pickers is the reverse, the antique dealers are out on the road trying to buy antiques for their store, and they see things and they make offers and they bicker back and forth with the owner until they drive the appropriate price to potentially buy it. So what do you learn if you watch the shows? One, you learn, the first thing you do is you always want the seller to through out the price if possible, you might get lucky, the seller might not have a very good grasp of math, they might not want a whole lot for the property, they might want a whole lot less than you thought, they would ask. Next, you wanna start low, if you have to throw out the price, and even if they through out the price, you've got a counter at a very low price, because we all know that a negotiation, the seller's gonna wanna go up from your price, that's how they feel that they had a value add, that's how they feel like they created value, was by negotiating the price up.
Also, throughout the process, you have to act really pained, you have to feign that it's just, just too tough to come up to that price, "Gosh, you're really stretching the envelope," even if it's not true. If you think the RV park is worth a million bucks, the guy's asking 700 grand, you still, as you negotiate around in that $600,000 to $700,000 range, you wanna act like you are paying them a fortune. Don't move quickly, don't... Don't, if you through out 600 and they say, "Oh no, I want 800," don't go to 750. Go up a little and then tell them why, say, "Gosh, I don't know, it's really concerning me, because I have to cover the mortgage and the building is old and... " Whatever the case may be, but start low and act pained. And another alternative is you can simply cut through all the BS entirely. A standard pitch, if you just wanna go straight to the doings, is to say, "What would I have to do to get you to sell me this RV park?" Just jump right over all of the negotiation, that's worked very successfully for us over the years, and it works for many people.
One thing you really have to guard against in the RV park industry when you're looking at buying something is what I call paralysis by analysis. So what does that mean? Well, sometimes people just think about things too much and they become their own worst enemy, 'cause all the time they spend pondering, by the time they're done, somebody else has already bought the deal. I once had a banker, he always wanted to buy a classic Corvette. He always had stories of the Corvette that he almost bought but he kept thinking about it, he wasn't really sure, was it really the color he wanted, and then at the end of every story was somebody else bought the car.
I don't think the guy ever bought a Corvette, but his entire life, he wanted one, but he just couldn't bring himself to just get off ground zero and start making some movement and making offers to buy a car, he was just stuck in the mud, of his own brain, pondering and pondering and thinking about it, and just thinking about it until the opportunity had long passed. The key thing to remember when you're making offers is, there's plenty of time for thinking, don't do it on the front end, remember you're racing the clock on the front end, every minute you don't tie it up, somebody else might, but once it's under your control, then you can do all of the analysis you'd ever like, once you have it under contract, in fact, you can't really have too much analysis, it's the reverse of paralysis by analysis. Now, that analysis is what's gonna keep you out of trouble to make sure that you've done and thought through every correct step during due diligence and financing. But you've got to get the thing under contract first.
The key to it all is, make lots of offers. That's probably the most important thing that any RV park investor can do, to get really good deals, you'd wanna be out there making offers constantly, because it's those offers that make things possible, without those offers, there's no energy, there's nothing. You'll never succeed, you'll never buy a property. Unless you go out there and tell people, "Hey, I'm interested in your RV park. What do you think about this price?" Or, "Hey, I wanna buy your RV park. What would you want for it?" Get those discussions started. Find out what the prices are. What's the worst that can happen? They ask too much, you can't strike a deal. But good things happen when you start making offers. This is Frank Rolfe, the RV Park Mastery podcast. I hope you enjoyed this. Talk to you again soon.