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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.
Most RV park sellers have owned those properties for years, for decades. We've bought many RV parks from sellers who had owned it as the original builder, and they might be in their 50th year of owning that property. So that's the norm, but yet, sometimes as an RV park buyer you encounter situations where the seller has only owned it for a very brief period of time, a matter of months, maybe a year. And now suddenly it's back on the market with them trying to sell it and that should set off a warning signal to you when you had this unusual situation of the short-term seller.
This is Frank Rolfe of the RV Park Mastery Podcast. We're gonna go over some of the risks and the dangers of those short-term ownership situations where someone who's owned it for a very short amount of time wants to put it back on the market.
So, the first thing that should alarm you with that situation, would alarm anyone with common sense is, okay, what's wrong with it? Why are they trying to sell it after a brief period? Because none of us buy things like RV parks for a short-term hold. Most people who buy an RV park are going to buy it with the intention of holding it at least a decade, maybe for a lifetime. But I don't know anyone who buys RV parks with a basic concept that they're gonna go ahead and buy it, run it for a couple months, and then dump it. So the immediate red flag is, what's really going on? Did that person encounter a terrible problem with the RV park? Are they horribly under on the revenue numbers? Is there a cost that they hadn't calculated? So, that should be the original concern. And because that is such a concern, that is gonna require you to do really good due diligence because you have got to uncover what the actual issue is.
Now, sometimes it's legitimate. We've bought properties from people who've owned them only short periods of time because it may be a health issue or some other reversal in their life. Maybe they're getting divorced. But you have to unlock the reason, because while those reasons may be legitimate, there are other reasons that they may mask with an excuse like that, which are not true. Maybe the simple problem is, they just can't get any customers 'cause that RV park location is a little too remote, or is in an area that's not really popular anymore with RV users. So, definitely you've got to unlock why, why they're selling so soon.
And you also have to remember that that scenario will also equally scare your lender who will wonder, wait, what in the world? They've only owned it for what, you're saying six months? And that triggers an alarm bell with your lender because he knows darn well using just common sense and past experience, that if someone has only owned that RV park for a very short period of time, it may have some horrible underlying problem. And remember that lenders don't like problem loans. All they get out of a deal is their money back. They don't really care about the upside. They're always averse to danger and risk, and that's really gonna hurt you on getting a loan when they learn, which they will, that the owner has only owned it for a very short amount of time.
Another problem you're gonna have with that RV park is, since they've only owned it for a brief period, they're not going to have lengthy financial records and this is a real crisis issue. Most lenders like to see at least the last three years of profit and loss in tax returns. But if the person's owned it for only four months, they do not even have one year of financial performance. That's a very, very awkward situation. And sometimes they will tell you, well, the guy I bought it from, he didn't have very good records, so I don't really have those. I can tell you right now, you're not gonna be able to go down to a conventional bank and get a loan on an RV park in the absence of all financial documentation. A banker would be crazy to do that. So that's not gonna be a winning combination yet. That is a constant problem with the short-term seller, is they just don't have the basic financials. You need to derive a value.
You also have to worry if most of the repairs and improvements that have been made are basically just things that they slap together with, baling wire, duct tape and Bondo. Because if they were gonna sell it so quickly, did they even make long-term fixes? A good RV park owner who buys the RV park to bring it back to life, to make it the best that it can be, they will expend significant capital in making upgrades. But if you were just trying to flip it, sell it quickly, why would you? Instead of making that important fix in the water line, maybe you just dig down and wrap a little rubber sheeting around it and little baling wire and say, well, that will hold for three or four months. By then, I'll have sold the thing and I'll be well out the door. So, you have to be very concerned if they've been looking and operating that property on a short term basis, as opposed to a long term basis.
Another problem you're gonna have is on the appraisal 'cause the appraiser is gonna look for comps, they're gonna look for past sales, it's gonna be on the radar that they just recently bought it, and you know that they probably bought it for less than they're selling it for. They wouldn't be trying to flip it. So that's another, another chronic problem.
And the final lot you have to worry about is something called the gypsy traveler scheme. Now, it's one of the few things that I heard from an old timer when I got in the business that really stuck with me, because I realized it is a certain weakness in the RV park industry and one you have to address. So the gypsy traveler scheme, what you have is someone who only owns the RV part for a very short period of time, and they typically wanna sell it at a really low price, or what you perceive was a low price because gosh darn it, that RV Park is completely full. So, they give you financials for only a month or two, and you arrive at a price, and then you buy the RV park. And as soon as you close about two days later, every single RV and the entire property pulls out. They're gone.
Because with the gypsy traveler scheme, what you do is you find a virtually abandoned RV park, and then you have all your friends and relatives who own RVs come and park them in the RV park, and then pay you rent, so you can show that you've got the rent, but they've all agreed they're gonna split the proceeds of the sale. So, you have 40 of your friends bring over 40 RVs that they would normally have an RV storage. They park them on the lots, they paying the rent. As soon as you close, they pull them right back out, put them back in the storage place where they had been, and then they split the profits 40 different ways. That's a real problem, and yet it's only found in that short-term seller situation.
The bottom line to it is that there may be real reasons for someone to put an RV park on the market very quickly after purchase. We've bought some like that. Those, there is no real problem. It was a legitimate asset when they bought it, and it's still the same asset when they sell it. And yes, things didn't work out as they thought, but then again, suddenly, they got divorced and they had to sell it. I'm not knocking that kind of a situation, but there's a whole nother side to it, a see me side in which you have sellers who own these things for short periods of time and go to sell them with the sheer intent of doing nothing but selling you something that is not what you bargain for.
This is Frank Rolfe for the RV Park Mastery Podcast. Hope you enjoyed this. Talk to you again soon.