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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.
There's not much to like the national news today, everything is very bleak, you have the highest interest rates in 40 years. Highest inflation we've had in 40 years, we've got a war raging in Ukraine and another one in Israel. There's just nothing positive to say. But that negative news is a very powerful force if you wanna buy an RV park. This is Frank Rolfe, the RV Park Mastery Podcast. We're gonna talk about why negative news is very good for being a buyer of properties. So let's first you analyze what happens with the sellers when there's nothing but bad news. So you've got all these moms and pops, they watch the same news channels that you do, and what happens? Every day they look at the news and they say, "Gosh, darn it, I'm depressed, I don't like the way things are going here in America," and they start to then think, "What could I do to make myself happier?" And they start thinking, "Well, you know what, I think I'd really just rather retire. I'd rather move somewhere else. I'd rather go do nothing, I'd rather just go fishing, turn off the news and just separate myself completely from humanity."
And that's what triggers with many sellers, the concept to sell. Because most RV park owners, they don't have to sell, they have good income and typically no debt, but you have to have something bigger, something that makes them personally wanna cut ties with their property, and one of the big factors that does that is bad news. When they see, bad news over and over, that is the grade of sand that makes the pearl, that is the catalyst for many of them to go ahead and elect to entertain the idea of getting their properties sold. They effectively become discouraged and depressed about America and the people that live in it, and they wanna basically go and be alone.
And also, when they have nothing but bad news, it makes them more agreeable to lowering the price because they figure, "Times are bad, I can't get a great price 'cause times are bad so therefore I'll go with a lower offer." Or maybe have something tied up and you have to go re-negotiate it, once again, they're more likely to renegotiate it because, well, times are bleak, and so they figure, "Man, I really would just want to go buy that A frame house on the side of the lake and fish 24 hours a day. So I'm gonna go ahead and bite the bullet and get it out the door at an even lower price, 'cause I'm ready to go." It also make sellers more willing to carry paper because they realize that there's no bank involved, they don't even really need to have a financing contingency, so once you've completed due diligence, if they carry paper, you can go ahead and close. At the top of that when times are bad, they figure, "Oh, no bank is gonna want to make a loan on this RV park anyway, so I guess I'll just go ahead and carry the paper." and we've long been advocates that the best kind of financing for any RV park, of course, is seller financing.
So the fact that bleak times helps people to get in the mood to carry the financing, well, that's great if you're a buyer because who wouldn't wanna go ahead and have mom and pop act as the bank? It takes a lot of risk, stress off you, no longer having to build that loan package, calling on banks, meeting with banks, waiting for their virtual jury decision in the loan committee, it's a whole lot happier friendly world when mom and pop agree to carry the paper.
It also means when times are bad, that they're going to be perpetually willing to renegotiate the price, to do whatever it takes to get the deal closed, because things do pop up when you do due diligence, reasonable things, realistic things, not lying to them kind of things, but when times, you're discouraging once again, they're gonna feel that inertia to wanna move on, and they're gonna go ahead and do whatever it takes to get the deal done.
Now, remember that bad times, such as we seem to be going into at the moment, particularly with that latest job re-forecasting where about a million jobs have been over-promised and under-delivered, and we had to take them back away from our statistics, which may well have pushed us now into recession, and we don't even know it, but these bleak times now are great for RV park buyers, because the bleak times are gonna trigger one big item, and that is a decline in interest rates. That says, the money you make with your RV park is typically defined by the spread between the interest rate and the cap rate. At times an interest rates or declining, that's when the most money is made with RV parks. Jerome Powell recently, definitely dangled the carrot that he is going to in fact, to start dropping rates starting in September, and many people project he'll drop the rates about three points before he stops to try and battle back recessionary forces. And that's great news for RV park buyers. Imagine you bought an RV park at a cap rate, which simply matched the loan interest rate and Powell does drop the rate three points.
Well, you would get your three points spread, that creates a 20% cash on cash return by nothing more than simply the time when you bought the property, even if you never raised occupancy or revenue of one penny, it would still be a roaring success for you simply because the interest rates had declined, so there are really are some very good and powerful by-products from a recession when it comes to RV parks.
Now, you might say, "What about my demand in the RV park?" Well, let's look at that for a moment. The average American utilizes their RV 14 days of the year. They're not going to not take a vacation because there's a recession, and a lot of RV park owners, probably 50% of them are retired, so they don't really care whether we have a recession or not, they're not in any way concerned about holding a job. And also, RV park travel was considered a less expensive way to travel, so people are tidying the belts and cost-cutting well RVs, and RV park travel appears even more reasonable to them as a macro hole. When you look at some of the greatest business people in American history, and let's focus on a trailer person. J. Paul Getty. So J. Paul Getty, maybe people may not realize, was instrumental, he was the largest manufacturer of what then were RVs in the United States, back in the '50s and the '60s, and his company was called Spartan, you can look it up, it was part of the Spartan aircraft conglomerate, which immediately following World War II, didn't really have any purpose, it had these factories that knew how to make things out of aluminum, but they had nothing to build, so he decided to have them start to build travel trailers.
And if you read his book, and there are many books on Getty, 'cause Getty was the richest person in America at that time, you'll see there's a common theme, see, Getty loved recessions, he loved depressions. He thought that those were the greatest times to be a buyer, he had no interest in buying when times were good, because when times are good, things were too competitive, the prices were too high, and the sellers didn't wanna sell, but when times were terrible, it all reversed, suddenly, he saw a good opportunity everywhere. Whereas a good time, he didn't see it anywhere, so he would basically hold off and not do anything, and then he would go gang busters during recessions, and then when we got back in good economic times, he would reign in any of his spending, he wouldn't buy anything more again.
So really, if you look at the world from a Getty perspective, then the pending recession is great news for RV park buyers, because that's what really triggers the opportunities. Now, the key to it all is, you gotta think like Sam Zell, who's the largest RV park owner in America, or at least he was, he died here recently. But he always said that when people are looking left, look right, and when people are discouraged and depressed about the recessions and the depressions, that is the time that smart buyers start seeing all the opportunity.
This is Frank Rolfe of the RV Park Mastery Podcast. I hope you enjoyed this. Talk to you again soon.