Due Diligence Comes After – Not Before – You’re Under Contract

How much research do you do on the property before you sign the agreement and put it in the title company? While you don’t want to waste your time, the truth is that too many RV Park buyers wait way too long before getting their deal locked up, and that’s a mistake. In this RV Park Mastery podcast we’re going to explore the strategy behind why you need to tie the RV Park up first, and do the diligence later.

What is The RV Park Mastery Podcast?

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.

So you found an RV Park to buy, came in from a broker, you found it from a direct mail postcard, but you would think to yourself, "Wait a minute now, should I do a little diligence? Should I dig a little deeper? I don't wanna really waste my time going through the steps of getting it signed up before I really know if I want to buy it." But the problem is, is that really smart?

This is Frank Rolfe with the RV Park Mastery Podcast. We're gonna talk about the nagging feeling that some buyers have that they have to do thorough diligence on the RV Park before they even lock it down and put it in the title company. Now, let's first make a few assumptions. Number one, time kills deals. And we all live under a constant sense of urgency. So every minute that you don't sign the contract on the RV Park, it's very possible somebody else is gonna steal it from you. That's one of the big issues when it comes to buying any property is the timing. Because your moment, your opportunity may suddenly pass and the property that you could have bought and you could have made a lot of money with and change your entire financial future, it goes on to do that for somebody else because they moved quicker. So we have to acknowledge that we don't have infinite time. We have to take action fairly immediately.

And also let's all acknowledge that it's a very common step in buying an RV Park that you tie it up under contract and you carry it around like a candlestick at a garage sale so you control the deal while you ponder if you wanna buy it. None of us really know we're gonna buy the RV Park when we sign it up. We kind of have a warm, fuzzy feeling. We make an educated guess when we don't really know. And we also all have to acknowledge that there's a lot about an RV Park that we're gonna learn in due diligence that we can't possibly know on the front end. So when you weigh all those things together, what does it mean? When do you tie the thing up?

Well, here are some of the reasons you need to tie it up sooner rather than later. The first one we already identified. Every minute you delay in not tying it up, somebody may steal it from you. That's a big deal. That one item alone should propel you to sign things up very fast. You definitely want to shoot first and ask questions later. Because if you don't, somebody else more than likely will. But also remember that when you get the RV Park under contract, you will have plenty of time to do due diligence. You're not racing the clock after you sign it up. It's not like you need to do some advanced preparation work.

Most RV Park sellers will give you at least 30 days of due diligence time, and that's more than enough. You can definitely get everything figured out about the property within that 30-day period. Also, don't forget, you do not have the legal right in many cases to do the diligence until the agreement is signed. Some people forget about this. In some states, you're not really allowed to go to the city or the county or the state and ask for permits or bills or things until you have a vested right to do so. And theoretically, if you did, without having it under contract, the seller could theoretically sue you even potentially. I've never heard of a case like that, but it's possible. So you really need to sign up the deal before you do due diligence because you don't really have the right to do it until then. And then of course, you can't get most of the most important information until you are under contract.

The seller is not going to give you their profit-loss statements. They're not gonna give you the tax returns until you have an agreement signed. Why would they? They'd be crazy to do that. So if you say, "Well, I've gotta really get a better handle on the numbers before I tie it up," how are you gonna do that? You're not gonna have any of the actual information to do your diligence from.

So when you add all those factors together, what it means is you can't really do very good diligence on the front end anyway. So why are you trying? Why are you waiting? Why are you delaying signing up the deal? So then how do you fix this inherent feeling somehow that you should move slower, that you should ponder the deal more in depth, explore it before you tie it up? Well, number one, you've gotta focus on just a few big-deal items. You can't over obsess. You can't think too much. So think of what the key drivers are. Location, that would be a good one. The infrastructure, that would be a good one. Running some numbers? Okay, that's fine. You can do all those things relatively quickly. You can do all those things just basically right on your computer. Just use some cursory inspection of the area. And if the thing looks like it might work, not that it's gonna work, you're not committing, then I'd move right to trying to get it tied up.

Now, what if you delay? What if you don't do that? Well, you can very well lose the deal. And how are you benefiting in that delay? And the answer is you really aren't. And then what about your argument that, "Well, but it's so much effort to tie it up, so much cost." No, it's not. You take the contract, you sign the thing and you send it in a couple signed copies to the seller for him to sign. And then you take that and give that with the earnest money to the title company.

It's not that hard. It doesn't take that much time. It doesn't cost that much money. It doesn't cost hardly any money at all. Although the only money you're spending there is the cost of the FedEx. And then, of course, whatever you write on that earnest money check. And even then, you get that back in the event you cancel. Now this is not to say that due diligence is not vital because it is. Benjamin Franklin once said that diligence is the mother of good luck. He was exactly correct. He never owned an RV Park. They had not invented recreational vehicles at the time of Benjamin Franklin in the 1700s. But his theorem is accurate. There's no question that people who do greater work in inspecting the property always seem to win. Because by doing property diligence, they lower their risk and they always seem to come out successful. But the time to do that due diligence is after you sign the contract, not before.

So if you've been holding back on signing contracts because you think, "Well, I don't know. I gotta ponder it a little." Stop doing that. There's an old saying, "Think like a person of action and act like a person of thought." It doesn't do you any good to think without taking action and often taking action and doing so immediately is your best course of action. This is Frank Rolfe, The RV Park Mastery Podcast. I hope you enjoyed this. Talk to you again soon.