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.
The dictionary defines a partner as a pair of people engaged together in the same activity. And in the RV park industry, there are three basic types of successful partnerships. This is Frank Rolfe, the RV Park Mastery Podcast. We're gonna be talking all about partnering and partners and why you might do that and reasons you might not do that and how to do that successfully. So let's go over the three different basic types of partners. The first type is known as the equity partner, and this is the person who would put up the capital to buy the RV park. Might be the down payment, might be the CapEx repairs that you do to get the thing back in good working order. Whenever there needs to be a check written and there's no money in the account, the equity partner would provide the money. And the corollary of the equity partner that is the operating partner, the person who does the work.
Now, why would you want an equity partner? Well, the first thing about an equity partner is, would you rather have half of $5 million or would you rather have 100% of $500,000? Because that's what it may come down to based on amount of capital you have to invest. If you've got not a lot of capital at this juncture, which there's nothing wrong with, many people got in the RV park industry literally with nothing virtually. But you can look at a lot more deals and a lot larger deals if you have an equity partner to supplement your lack of funding. And that may allow you to look at a whole lot of larger deals well beyond your reach and capability on your own. And yes, it's true, you'll have to split the money probably 50/50 by having the equity or capital partner, but look at how many more deals you could possibly do. So you have to look at the net result. I have people tell me all the time, "No, I don't want an equity partner 'cause I don't want to give up half." The way I look at it is, if you're giving up half of a much larger piece of the pie, then as long as that's more than it would be for your slice of the pie, then that's probably not a very bad thing to do. Now, where can you find capital partners? They exist almost everywhere. Equity partners exist in every friend and family group that you possibly have, because a lot of people are always looking at ways to get additional cash flow.
Now, many of them are not gonna put equity into deals that don't cash flow. And even if it does cash flow, they're probably gonna want what's called a preferred rate of return. That's an interest rate on their money. And after they get that preferred rate of return plus their capital back, then you would have the profit split. So while equity partners are fairly patient as they watch the RV park grow over time, they do wanna have a focus on them getting return on their capital. But equity partners have long been a staple of the RV park industry. Many people have used capital or equity partners and been very successful with them. So that is something you definitely should consider.
Then you have the operating partner. This is the reverse what we just said. Let's assume that you've got a lot of capital, but yet you don't know how to deploy it to make the highest rates of return. And you're trying to have some kind of risk-adjusted portfolio where you don't have all your eggs in one basket. You're concerned about the stock market right now, which you should be considering the current price to earnings ratio is 38 and the market's average is 15 since the beginning of time. That means the stock market would have to fall by half today to be back on its historical norm. But the operating partner is the person who basically does the work, and the capital partner is the one that provides the money. And it's a perfectly reasonable combination because the one party probably doesn't have the time or the desire to go out and do the work, and the other party does wanna spend the time and the effort, but they don't have any capital. So combining them together is probably a smart idea. Again, it goes back to the original theory, which is would you rather have 100% of a small amount or half of a much, much larger amount? And in this case, typically the half of the large, large amount is probably a really good idea.
There's a lot of people out there with capital looking for operating partners. So if you say, "Well, I wanna be the world's greatest RV park owner and operator." You probably will not have a great difficulty in getting the funding for that, but that's what the operating partner is. So when you combine those two, the capital and the operations, now you've got something that you can go out and apply to creating a much larger RV park portfolio.
And then you have the third style of partner, which is what I call the power partnership. Now, this is essentially a situation in which both parties combined are better than they were individually. Now, what am I even talking about? Well, if you've ever seen that big white book with a big embossed apple on the logo, then you know that's a story of Steve Jobs and Steve Wozniak, the founders of Apple. And if you read the book from end to end, which I've done, it's a pretty good book to read, it's a big book, a lot of words in it, you'll see that how it typically worked out was that Jobs was a great salesman with very little technology knowledge. Wozniak had no sales ability at all. He was an absolute zero when it came to people skills, but he was an absolute technology genius. If you had not combined the two together, if they had never met, all you would've ended up with is Steve Jobs probably a very successful used car salesman. And Wozniak, probably a middling computer guy who makes circuit boards and sells them on weekend computer fairs, which is what he was doing. And when you combine them, you get one of the greatest companies ever invented in American history, and it doesn't happen just in the world of business.
You also see great power partnerships in things like entertainment, Martin and Lewis. You see it in music, you see it in all kinds of enterprises. But the key is that both parties combined must be stronger than they were individually. If that's not the case, you don't really have a power partnership. All you have then are basically two people who share their thoughts, their dreams, but they don't really have any additional Oom-Pah-Pah by being together. And if you're gonna partner with someone, and I mean partner all the way around both operations and capital, then it's absolutely essential that you find people who actually are the mirror opposite of you. You have a skillset. You're either a people person typically, or a numbers person. If you're a numbers person, you'd want to link up with a people person like Steve Jobs. And if you're a people person, you'd want to link up with a technical person like Steve Wozniak. That's how it normally works on those power partnerships.
Now, why would you wanna partner anyway? Well, again, you wanna partner with people when the partnership yields better results than you could do individually, because there are certain problems with partnerships. One big problem is you split things. That's always a problem. But another problem is that people can change over time. Many people have what's called the seven-year itch, the midlife crisis. Even our cells in our bodies replicate every so many years. So we're never really the same people over a long horizon. And sometimes partners that were doing good suddenly can go bad. It's just how it works. Then you have the issues of life. People could get sick, car accident, cancer, heart attack, or die. So if you're gonna try out a partnership, it's very important you get it all in writing. That way if anything does go bad, you can extricate yourself from the partnership and who knows, maybe then enter into another partnership later. But when you look at partnerships, many people miss the whole point of it. The whole point of a partnership is strength and power and being a better RV park buyer and operator by the sake of being together. And when you can forge those kinds of partnerships, that is going to be very beneficial to you. This is Frank Rolfe with the RV Park Mastery Podcast. Hope you enjoyed this. Talk to you again soon.