Most lenders and buyers want a good three years financials. January through the end of December, each year in the hand to see the performance of that RV Park prior to buying it. But what happens when your seller cannot provide that information? This is Frank Rolfe with the RV Park Mastery Podcast. We're gonna talk about when you have insufficient financial information in buying an RV Park and what that means and what you can and cannot work around. So let's talk about the different types of insufficient financial information that pops up often in RV Park deals. The first one is the one where they don't have a full three years of financial performance, but they've at least got 12 months. So what does that mean? Why would a seller not have three years performance, but only 12 months?
Well, one option might be they just bought the park and they've only owned it for a year or a little more than a year, so there's one item. Number two, maybe they went to a computerized system about a year or so ago and before that it was all done by hand. And it's such an embarrassment, they don't even wanna show you. I've seen financials frequently in the past where people wrote in a purple crayon what their numbers where and they know that that's... You won't be impressed or swayed by that, so sometimes they only wanna give you 12 months because that's the only 12 months they have since they started doing professional accounting on the RV Park. So what happens when you don't have a full three years, can you still get the loan? Well, it's gonna come down to of course, the appraiser and the lender's opinion.
Now, many lenders and appraisers will let you get by with just one year operating performance, it's not ideal. Most leaders like to see three years and then get the average of those three as far as net income, to have a better idea, day in, day out, how that RV Park can perform. And when you give them only one year, they say, "Well, that's not enough data, that only tells me about just that one year, but what about the year before, the year before that? How do I know it just didn't have a really good occupancy and a whole lot of luck in one year and the other two years, it was a disaster?" And that is a concern. Now, of course, the good news is, of all the years they have, they have the most recent year, so that would tend to give you an idea that particularly in a post-Covid America, this RV Park is still hitting decent numbers. But the bottom line is when they have that kind of is some insufficient information that you can often work around that.
So that one is not often fatal as far as doing your deal. Now, the next tile you get is when they have no records at all. They wanna sell you the RV Park, and you say, "Let me see the financials." And they say, I don't really have any. Now, where do you see that the most frequently? Well, you see that very, very frequently in cases of REO or RV parks that have failed and got into foreclosure, and therefore the financials are now part of the bank, and the hostile mom-and-pop borrower never gave them any financial data. Just said, forget it, or maybe they never had any. And this reason that they went broke. As a result, when you buy a property that's had some kind of financial issue from typically a lender or a broker representing a lender with a property in REO, then they may not have any financials at all.
Now, can you buy a property like that? Well, it all depends. You're gonna have to get a really good price on it because you've got a lot of risk when you don't have any financials, and when those kind of properties go to auction, as they frequently do with no financials, you never get a very high price. And that fully comes with that territory when you have insufficient numbers, but yet you can still buy them, but can you really get a loan on them? Well, again, if you buy it really cheap, that bank, that appraiser may be comfortable enough even though they don't like it, to extend you debt, simply because they think you're getting a real bargain on it. But you will never get top dollar. So if a mom-and-pop is trying to sell you an RV Park and they don't have any financials, then the first question you have to ask them is, are you gonna carry the paper?
Because your ability to get a loan on something that has no numbers is very, very difficult. And then sometimes a person will say, "Well, yeah, I got some numbers for you, here you go," but in this case, the reverse of the first option, they don't have financials for three years, they only have financials for maybe the first year from three years ago, or maybe two years ago and three years ago, but they don't have this year's financial. So what's that all about? Well, typically what that's all about is they don't want you to know about this year's financial 'cause it wasn't any good. Maybe you've got a property that did really, really well for a couple of years, and then suddenly the market has gone down the drain, or their marketing went down the drain, or their management went down the drain and they're embarrassed, they don't wanna show you how bad.
They wanna talk about the past, they don't wanna live in the current. So does that work for you as a buyer? No, that's probably the worst possibility when it comes to financials, 'cause that's really troubling. When someone says, "Yeah, here are my financials," and they're missing the last 12 months, it sends an immediate message to everyone, the bank, the appraiser and you as the buyer, that something funny is going on. And that's a definite danger sign. Clearly any well run RV Park should have financials for every year, and certainly for the most recent. But when they wanna skip it, they wanna just gloss over it, they wanna say, well, I think this year was kinda like it was last year. That's a terrible sign. Those are the deals that typically derail because when you get into it, you find that terrible things have been going on, and that's why they won't give you the financials.
So that of all the examples, that is probably the hardest to work with, the most troubling to work with, the one that typically ends in a canceled deal because it fails in due diligence or financing. Now, in all of these cases where someone has insufficient financial data, the key way you wanna maneuver the boat is in the seller carry. So how do you do that? Well, when they don't have three years financials, which is kind of the gold standard benchmark, you need to immediately suggest to them that maybe they should carry the financing 'cause it may be very, very hard for you to get a loan. And many of them will already know that instinctively, particularly the ones who don't have a full three years. They know that banks require that, they knew that when they got to loan themselves when they originally built the property or bought it.
So as a result, they'll say, "Yeah, I guess you're right. I guess I probably will have to carry the paper." And of course, there's nothing wrong with carrying paper, carrying paper is a great way to get an above market interest rate on a first lead on a nice real estate asset, so don't be shy about it. It's not like you're trying to rip them off or anything, just tell them that, "Hey, you know what? If you don't have three years financials, I think you'll probably have to carry." And you may get lucky. And they may say, "You know what? You're right. I probably do, and I definitely will." Also remember that the minute you buy that RV Park, you're gonna start rebuilding the financials, because really all of these old financials, that's all an interesting historical reference point. It's a starting spot.
I don't know of any RV Park owner that buys the RV Park and says, oh yeah, that's the best the RV Park will ever be. I'm just gonna try and keep it exactly on that same plane. No, that's not what you do. You're always gonna be trying to boost that NOI by raising occupancy, raising rents, controlling costs and all that type of thing. So don't be obsessed with all financial thinking, oh well, that's my road map that I need. No, no, no, you wanna do your due diligence based on actual numbers that you can tangibly quantify. So those financials are important for banks and for appraisers, but it's really not that vital for you as the buyer, 'cause you're gonna rebuild that P&L from the ground up. You can't just trust mom-and-pop's old numbers, because those numbers are not gonna be the same numbers that you're not going to utilize when you take over.
So are bad financials... Is it possible to still buy and operate the park with bad historical financials? Sure, because they're just historical, they're not really forward-looking, they're not gonna show you the future, they're not gonna be your roadmap to success. All they are, therefore, is a tool to allow you to get a rough idea of how mom-and-pop did and, typically, just to get a loan. The bottom line to it all is that there are many, many deals out there that are bought and sold every year with insufficient financial information. Of course life is much easier when you have it but it's not the end of the world when you don't. This is Frank Rolfe with the RV Park Mastery Podcast, hope you enjoyed this. Talk to you again soon.