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Welcome to the RV Park Mastery Podcast, where you will learn the correct way to identify, evaluate, negotiate, perform due diligence on, renegotiate, finance, turn-around and operate RV parks. Your host is the 5th largest owner of RV and mobile home parks in the United States, Frank Rolfe.
To buy an RV park in America, you typically have to either A, be a fantastic negotiator with a seller who really wants to let the property go and is willing to carry the paper at zero down. That's one option, that's the rare option. Or the other option is you have to have some capital for the down payment. And if you don't have enough capital to buy the RV park, a solution that many RV park buyers have used is getting a capital partner. But how do you find the right partner? And what do you need to know about that process? This is Frank Rolfe with the RV Park Mastery Podcast. We're gonna explore all about financial partners, capital partners, how you find them, and how that works exactly.
So how can you find a capital partner? Well, most people find their money partners through a friends and family network, because most everybody today knows people who want to do some type of passive investing at a higher interest rate than they can obtain in CDs, or treasuries, or stock dividends. And even though I know the stock market has gone up a lot in recent times thanks to AI and technology, that bubble will probably burst soon, and I think many people know that. So a lot of people are already on the lookout for other ways to get regular monthly cash flow in alternative investing, of which RV parks certainly are one of those investment options.
And when I'm looking for a capital partner, the first thing I would want to see is an alignment of goals. What do I mean by alignment of goals? Your goal is to get a capital partner to buy that RV park, and their goal should be to provide the capital on that RV park, but you should both have the same desire, and that's basically how long this investment will go. So if someone wants to be your capital partner, but their desire is simply to buy the RV park and flip it in a year, and your goal is to buy the RV park and keep it for a lifetime, clearly that's not gonna work out, because you are not truly aligned. So you would want to discuss with any potential capital partner exactly what they're trying to achieve, to see if that matches to what you're trying to achieve.
Number two, you want solid morals, because you want a partner that is a friend that you can rely on, that is trustworthy. And if your morals don't match, if this person is not a straight-up person and yet you are a very honest, straightforward person, that's probably not gonna work very well. There's a certain group of people who act as money partners who do what's called loan to own, and their goal is to ultimately take the property away from you and kick you out if you don't meet the various covenants of your lending relationship. So I don't want to mess with those people, you don't want to mess with those people. You want nice, moral, honest people. I don't think that electing a capital partner with bad morals, bad track record, litigation, things like that, that's probably not a good idea for you.
Also, you got to make sure that this capital partner does have sufficient capital to buy the RV park and do the rehabs and all the things you want to do, because there's nothing worse than picking a capital partner who just doesn't have enough capital. That didn't solve anything. So you got to make sure they have enough money, not only for the down payment, but also for all the various turnaround items that you want to do.
Also, they have to be accepting of very reasonable terms and profit splits. Right now, in RV park land, when you're trying to get a capital partner, typically you're gonna pay maybe an 8 to 10% preferred return, and then a profit split of maybe 50/50. Now, none of that is set in stone, it's variable, it's based on what people want to do, no laws one way or the other on it. But you wouldn't want to do a deal with somebody as the money partner who says, "Okay, here's what I want. I want 20% preferred distribution, which means the interest rate on the amount that they put in, and then I want 90% of the deal." You wouldn't do that, right? Now, unbelievably, the private equity world in America, that's what they do. They do a thing called 2 and 20. They, when they act as capital partner, typically they want 80% of the action, and they want to leave you with only 20% of the profit. Doesn't seem very fair, right? That's one reason why private equity groups have such a bad performance over long periods of time, is they tend to jibe and team up with people who are not very good, because good people will not normally accept those terms. And so if you're gonna get a capital partner, they have to be accepting of some kind of reasonable term for you. And reasonable to me would be defined as probably an 8 to 10% preferred return right now, and probably a 50/50 split of profits.
Also, as we mentioned earlier, you've got to have investors who are patient. You don't want to have a capital partner who puts money in and then immediately calls you up and says, "Hey, when do I get my money back? It's been three months now." Normally, if you're gonna buy an RV park, you're gonna be in that deal for at least five to 10 years. That's just a fact, because to get the most profit out of that deal, if you were to sell it, you would have to get the thing running on all eight cylinders on occupancy and rent levels and cost containment, and then season that for a little bit, and then take it out to market. Five years is probably the benchmark fastest you could do it. In most cases, it ends up being seven to 10 years in the future. So you have to have people who are patient.
Now, one way you could have a more patient investor as a capital partner is if someone did that on a self-directed IRA, because that's very patient money. That's money they can't typically tap until they retire. So it may already have a shelf life on it, 10 years, 20 years, something like that. But even if it's just regular old money in their checking account they want to invest, you have to make sure that they are willing to go for a seven to 10-year hold, because that is the reality of probably how long that money is gonna be in a deal.
Also, you've got to do some basic background checking online. There's various websites you can use like BeenVerified and others, and you can do a lot of screening on somebody. People may not like it, but today, all of your private information really isn't private anymore. These different websites can track everything on the person. They can even track if there have been any criminal cases against them. Then, of course, you can go to AI, it will track out every mention of their name and every kind of court document and filing. You'll learn it all pretty rapidly. And it's not snooping, it's not being ridiculous, it's not being a voyeur. No, all you're really doing here is you're just wanting to make sure, in the crazy world that we live in today, that that person is everything that you believe that they were to be.
But the bottom line, and the biggest single item in choosing the capital partner for the RV park, is your gut instinct. Because if you're an adult, and you've been fortunate enough and skilled enough to get where you are in life today, you have to trust your basic instincts. We all have this fight-or-flight mentality. We learned it apparently from back in the days of being cavemen. That's how people were able to go long distances. That's how people were able to decide whether to try and fight off the saber-toothed tiger or run off and hide. We all have this kind of deep sense of a survival mode of what we should and should not be doing. And that extends all the way to RV parks.
And if you have a bad gut instinct on an individual, if you feel like, "Yeah, I really don't think I should be their capital partner, but gosh darn it, it seems so easy, I've already met 'em and they want to put the money in, okay, let's do it," You have to listen to your gut instinct. It's very rare in life when your gut instinct tells you one thing, it turns out a different way. And since you're aligning with somebody for perhaps a decade as your RV park investment partner, you've got to make sure that that is a good fit. And often your gut instinct will tell you whether that's the right step or not. This is Frank Rolfe with the RV Park Mastery Podcast. Hope you enjoyed this. Talk to you again soon.