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.
There are many books at Barnes and Noble, discussing different types of strategies for negotiation, but there's one that you won't find in any books there at the bookstore, which is one of the most powerful forces when trying to forge an RV park deal. This is Frank Rolfe, the RV Park Mastery Podcast. We're gonna be talking about the concept of being inclusive with your seller. Now, what do I mean when I say inclusive? It means that you bring the seller in to your own mental thoughts on the value of the RV park and whether it's a good purchase for you or not. You literally are asking the RV park owner to be the judge and jury on whether or not the deal should go forward. And here's how being inclusive works.
First, you tell the seller the true story of what you're trying to do, because inclusivity rarely works when anyone's holding anything back. So you might say, "Okay, here's the situation. I'm an electrical engineer. I wanna buy an RV park, and I think yours is perfect for me, but I'm having problems in coming up with your pricing. And that's probably because I'm obviously not nearly as experienced as you are. So when I look at your revenue coming in, and the expenses going out, and then there's these expense categories I think, that aren't in this financial statement, and when I readjust the others, such as property tax at the correct number, here's what I come up with in my net operating income. So tell me where I'm wrong. Isn't this what the correct number would be? And therefore, if I'm gonna have to get a loan on this, then isn't this what the value would end up being to the bank as far as a coverage ratio, et cetera?"
And when you bring the seller in to the whole concept of the sale from your perspective, it can also lead to some unusual results. It's kind of like when the teacher asks the kid what their punishment should be. They cheated on the test, and they say to the kid, "Well, so what do you think the punishment should be?" Often, the punishment is more strict than what they were going to propose. The student might say, "Well, I think I need to stay after class for two hours, writing over and over, I will not cheat." When in fact all the teacher was gonna propose is they stay after class for 10 minutes and clean the chalkboard. And when you bring in the seller on an inclusive basis, they start to foster a feeling that they have to watch out for you, that somehow now they are your big brother or big sister trying to fend off uncertainty and problems.
So often, they will start unlocking new ideas. They may end up dropping the price. It's a wide open slate for them to do whatever they desire, because now you've made them part of the process. It also breaks down that whole barrier that most buyers and sellers have when negotiating of you've got your team and they've got their team, and you go back and forth on the pricing, "Well, I can only pay this." "Well, I can only take that." and you kind of triangulate to a certain price. But in that kind of negotiation, clearly, both parties are completely on separate teams. It would be like the Democrats and the Republicans negotiating for some kind of new congressional bill. But when you go with an inclusive, the teams are blended. You're not really on your team, the seller is not really on their team. You're all kind of just in one big team. And what that big team is all about is the win-win negotiation concept that both buyer and seller profit from the deal. And that's another very important part of doing inclusive deal making, is to reinsure the seller constantly that it's your goal for them to get the best price.
Now, how do you do that? You just keep telling them that. You keep saying over and over, it's important to me that you get the best price on this deal. It's important to me that you feel really good about this transaction, because you don't hear that negotiation very much. Have you ever heard a car dealer say, "Oh, it's important to me that you get the best price on the car." No, absolutely not. They're on their team, you're on your team. Their goal is to make you pay as much for that car as a humanly can. But if you just give people verbal reassurance continually that your goal isn't just to buy the RV park, but also to buy the RV park at a price where they truly benefit and get the best price, then that is a great way to get the inclusive feeling going.
Also, if need be, in your inclusive deal making, you can also have a fall guy, you can also have a bad guy. And typically in most RV park deals, the bad guy is the bank. Now, why is the bank the bad guy? Banks are great. You gotta have banks, and banks serve an incredibly important role in America obviously, because they take a lot of the risk and they really are underpaid for what they do, in my opinion, because all the banker hopes to get out of the deal is their capital back plus interest payment, but they don't have any upside, they have no equity in your RV park. If your RV park doubles in value, do they get a double of their amount that they lent? No, they don't. They just get their money back plus interest. But as a result, banks are very conservative by nature, and everyone knows that they're very conservative by nature.
So as a result, you can say to the seller, "Seller, I've talked to a bank. I know how the banks were gonna go ahead and approach this RV park, and I'm pretty sure this is what they're gonna come up with, with a value. Or, I'm pretty sure this is what kind of income they will allow us to utilize from that, which we won't. Or I'm pretty sure this is the expense number they're gonna use for property tax despite what you are currently paying." So always feel free to fall back on the bank if needed, and in that way, you can kind of play good cop, bad cop, because you can say, "Look, I agree with you. I think the RV park is worth this much, but gosh darn it, the bank won't go along with that."
Finally, inclusive deal making often ends in seller financing, because often, for the seller to get the price that they want, and for you to be able to also make money requires some kind of unusual debt structure. Particularly right now, when we're at a time where the interest rates have risen since Q1 of 2022 to their highest level in 40 years, it's more important than ever before for sellers to imagine carrying the paper. Now, why do sellers carry the paper? Because it's good for them. They get an above market interest rate and they get much better tax treatment. So often, you can steer that RV park deal into a seller carry position simply by being inclusive, because at the end of the day, you and the seller may determine the only way to make that deal go forward. The only way for the seller to get the price they desire, and also for you to have the compelling reason to make money to go forward is by them carrying the paper.
Now, if you can imagine in today's market how difficult bank financing truly is, isn't that not enormously advantageous to you to be able to have the seller serve as the banker? And on top of that, we all know that non-recourse debt is the best kind of debt, and seller notes are typically always non-recourse. The bottom line to it is if you wanna be really successful in negotiating RV parks, if you wanna buy them at the best prices and the best terms, often, using an inclusive strategy is your best form of negotiation. This is Frank Rolfe, the RV Park Mastery Podcast. Hope you enjoyed this. Talk to you again soon.