If buying an RV Park is part of your New Year’s Resolutions, then here are the four tests you must perform before pulling the trigger and acquiring the property. All of these steps are attainable with reasonable effort and basic knowledge of how they work. So what are these important action steps?
Do great due diligence
Davy Crockett – American folk hero, pioneer, soldier and statesman – died at the Alamo in 1836, about 100 years before they built the first RV park. However, he had some strong thoughts getting things done and those relate well to the issue of acquiring real estate. Crockett was not a big talker, but he did once say “know you’re right, then go ahead”. You can’t “know you’re right” unless you perform solid due diligence on a property. That includes a complete study of the economics, infrastructure and location. There are as many stories of RV Parks that failed diligence as there are those that came through successfully. There’s no magic to this step other than 1) knowing what to do and 2) doing the work. Most of the steps can be completed by phone and email, so there’s no excuse that you don’t have the time to be on-site to get it all done. Benjamin Franklin – another American folk hero – once said that “diligence is the mother of good luck” which means that you’re best chance of success is to check out every aspect of the property before you buy it.
Risk vs. reward analysis
Sam Zell – who is the largest owner of RV Parks in the U.S. – is a huge advocate of the principle of “risk vs. reward”. This is the concept that you should always buy a deal with low risk and high reward and never buy a deal that is high risk and low reward. That just leaves deals with high risk but high reward, and those require special consideration, particularly concerning whether or not there’s a way to mitigate that risk. For example, if an RV Park has a solid track record but is lacking professional marketing, then that’s a deal with low risk (it’s got stable economics) and high reward (just ramp up the marketing and you can push the net income enormously) – so that’s a deal you would do. But what if you change the variable to the fact that there are no financials of past performance? Now it becomes high risk but high reward, and needs further thought. How would you mitigate that risk? Maybe by focusing on the mathematical attributes of occupancy (such as power usage) and then trying to come up with the amount of power used by an RV per day to figure out what the actual occupancy was for those prior periods.
Best case, worst case, realistic case studies
This is a method to bracket down and separate the risk from the upside and to put that in monetary form. In this exercise, you examine what would happen if you don’t hit your budget at all and if you could handle the monthly mortgage payment vs. hitting your best case scenario vs. somewhere in the middle. The general consensus is that if you can survive the worst case, would be happy with the realistic case and ecstatic with the best case, then you should go forward. But if the worst case would bankrupt you and the best case is not that impressive, then forget it. This test is similar to risk vs. reward but requires you to distill the macro into actual financial terms for comparison.
This is the big final test – and it’s not based on science but intuition. “Gut instinct” is the sum of all the data flow into your brain and then coming to conclusions based on all available material. They say that the human brain is the most powerful supercomputer on earth – so use it! We have never bought an RV Park that our brain told us “no” and not regretted it later. Similarly, on those deals in which our gut instinct is "this is a total winner” have we ever been disappointed. So this test is basically the end result of all the earlier ones and is a strong final case for either going forward or pulling the plug.
Buying an RV Park is a difficult decision to make unless you have a solid methodology to help make that determination. This list of action steps will help you in that quest. This is how the professionals make their decisions and they got to be professionals from making good decisions over and over.
For more information on buying RV Parks – including everything you need to know about how to identify, evaluate, negotiate, perform due diligence on, renegotiate, finance, turn-around and operate these unique properties – then check out The RV Park Investing Home Study Course.