Brokers have been the source of more than half the deals we’ve purchased over the past 30 years. But one big mistake some buyers make is to look at the broker as more than just the source of the RV Parks they buy. In this RV Park Mastery podcast we’re going to explore the reasons why you should keep all brokers as great resources for deal flow but not turn them into deal evaluators or sounding boards for your turn-around concepts.
Episode 101: Let The Broker Provide And You Decide Transcript
RV Park brokers are an essential part of the process of finding the right RV Park to buy. In fact, more than half of every RV Park we've purchased in the last 30 years originated from a broker. However, there are some important rules you need to know when it comes to working with brokers, as far as having them involved in the actual decision itself to buy or not buy the property. This is Frank Rolfe with the RV Park Mastery Podcast.
We're gonna talk about the concept that you need to have the broker provide you deals to look at, but not help you decide on them. Basically, the broker provides and you decide. Now, brokers are wonderful people, and we've been working with some of them for as long as we've been in the business. And again, out of all the different ways to find an RV Park, there you got online methods, cold calling, direct mail, brokers for us have proven to be the most effective. And we could never have attained the level of ownership that we have today if we did not have very strong relationships with all the different RV Park brokers that are out there.
However, when you work with brokers, the important thing is deal flow. The sheer volume of deals that come in the door, the sheer number of of RV Parks you have to evaluate. But you get yourself in trouble when you start giving the broker your criteria because two things happen. Number one, it makes them think you're a picky buyer. And as a result, you'll start to see the volume of deals that are sent to you to look at diminish because they think, why should I bother? This person so picky, They give me this endless list of things that they want. So that's one problem.
Another problem is you get the broker thinking too much. Now, instead of just being there to provide deals for you to look at, they're trying to think through, I wonder if this is the right deal for that person. And that's very contrary to what you wanna do, because you wanna be the person who makes the decision whether it's right for you or not, not them. You're trying to get the sheer volume going of deals to examine. You know your criteria, you know what you want, but it's very hard to transpose that to the broker. They're never even gonna remember what you're talking about. All they're gonna hear is you whining on of you want this and you want that, and you don't want this, and you don't want that. And all they hear is big pain. So don't get them involved in the decision making first because it is going to decrease your volume.
So that's the first reason you can't get them involved. You need to have them provide and you decide. The next problem is once you talk to the broker about your plan, let's say you tell the broker, well, here's what I think I will do with that RV Park. You know, I'm gonna increase the social media marketing, and here's what I found are the parks that have a really good website. What do you think's gonna happen with that information? Well, remember that brokers talk to lots of people. They're not just talking to you, they're talking to others. And when you tell them your intelligent plan, they're going to use that as part of their pitch to everybody else. So what a nightmare that is. You're basically now helping them sell the property to everyone except you.
So you never want to go ahead and talk through the narrative of how you will turn it around, because that will then be used against you as a weapon or as a tool. If you need affirmation from someone, don't go to the broker. Don't say, Hey, broker, what do you think about this plan? 'cause I guarantee you, if that plan sounds smart to the broker, he will start conveying that to every other buyer that he talks to thereafter.
Also, don't forget that the broker for many sellers is the person they go to for advice on pricing. So here's how that would work. Let's say that RV Park is priced at $450,000, and you tell the broker all these things you're gonna do to make that number go higher. And when you make your offer and the seller asks the broker, what do you think? Should I take it? They'll then say, nah, I wouldn't take it. I count on a much higher offer because I know that this guy is gonna do X, Y, Z to boost the net income. So once again, you put yourself in a real predicament because by talking to them honestly, by saying, okay, well, you know, here's what I think I'll do. The problem now is that you've ingrained in that seller the potential increase in net income and value of that RV Park, and he will now send that on to the seller.
Now, if you can't then use the broker as a sounding board, as someone to help you make the decision, as someone to tell you whether that's smart or dumb, then what do you do? How? How do you then get a second opinion on value? Well, the key in our industry, as in all industries, is it's all gonna boil down to you and your knowledge of how RV Parks work. If you're needing to find out from the broker whether it makes sense or not, then you don't have enough confidence yet to be a really good buyer. Often buying RV parks is gonna revolve around instinct. The ability to put every deal into one of two boxes. The it might be a deal box or the, it's definitely not a deal box. So you've gotta get that sort of established. You need to be able to look over RV Parks, understand the basic tenants valuation, and know roughly what they're worth.
Secondly, another good, way to affirm value is with an appraisal. Now, I'm not gonna say that all appraisers are perfect, nor that all appraisals are completely accurate, but there's a very good likelihood that the appraisal is a pretty close ballpark of what things are worth. You'll typically have to do an appraisal in the due diligence process anyway, unless the seller is going to carry the paper. So as a result, you are going to get that affirmation of value at some point in the process, either you earn your due diligence or financing provision.
And then finally you have the lender themselves. Lenders are very pessimistic by nature. There's an old saying about lenders, which is before you could have return on capital, you must have return of capital. They always see every glass as being half empty. It could even be brimming the top, and they still see that final little quarter of inch as, Oh no, but it's kind of empty, because they don't get any equity in your deal. They don't make any upside based on how it performs. So if the deal goes bad, they could lose all their money, but if the deal goes great, all they get is their money back, plus some small amount of interest on top.
Therefore, lenders always look at every deal from a negative perspective, and that's good for you as a buyer. That's a really good way to get affirmation of value by someone who questions everything. I know a lot of RV Park lenders, they will actually do what they call stress test the loan by saying, well, now what would happen if the revenue fell 10%? What would happen if it fell 20%? They will try and find the breaking point at which you would not be able to service the loan, because once they know that breaking point, then they have a much greater idea of comfort level they have in the deal.
The bottom line to all of it is that brokers are a great, great source of deals. We could not have ever been able to buy as many RV Parks as we have over the years in their absence, but don't look at them as the person that you need to get reassurance from. Reassurance needs to come from yourself, it needs to come from your feelings of reliance, at least on the survey of it being somewhat accurate. And then certainly from feedback from the lender who is definitely going to steer you out of harm's way because they are inherently non-risk taking.
Now, there's plenty of RV Parks out there if you can just find them There's never been anyone who could not find the RV Park of their dream if they had sufficient volume to sort through it. So volume is the most important ingredient in finding the right property. And if you just look at the broker as someone who can help you in that quest for maximum volume, then you should truly succeed. This is Frank Rolfe, the RV Park Mastery Podcast. Hope you enjoyed this. Talk to you again soon.