Records written in purple crayon on loose-leaf paper. Revenues in cash kept in a metal box. These are all things that we’ve seen in RV park due diligence. And they can cause real problems in trying to obtain debt to buy an RV park or even instill the confidence needed to make a legitimate offer. So what do you do when the seller does not have good “books” – any “books” at all?
See if the tax returns do the job
Sometimes, even though the seller has done a lousy job of keeping records, they still have enough of a foothold to produce accurate tax returns. So one initial stop is to see if the seller has tax returns to support the level of income they claim to generate. However, having tax returns does not always do the job, as many banks want to see both tax documents as well as professional-quality financial statements. But having at least some government documentation of income takes some of the risk off the table.
See if the seller will carry the paper
Of course, one way to get around banking requirements is to have the seller act as the lender. That being said, it’s not really within the buyer’s control if the seller will or will not do that. But saying to the seller with bad books “you realize you will have to carry the paper, right?” is often the appropriate start. Most sellers remember how hard it was to get bank financing to build their RV park in the first place and know that it is probably a reality that seller financing is their only option if they have not been doing proper accounting and bookkeeping.
See if – at some price – you can get a loan anyway
Some banks will still make a loan despite poor records and sketchy numbers – if they believe in the collateral and the fact that it can be fixed by a new buyer. So a big part of getting a loan on a park with bad numbers is in the narrative of how things can be turned around, as well as the potential of the location and the business model. It’s possible that a lender who would normally make a loan at 80% LTV will make the loan at 50% LTV if things are really screwed up. So don’t give up until you try.
Never repeat this problem
Of course, the moral is that you must never let this happen again while you’re in command. It’s one thing to buy a park with bad numbers and then fix it, but it’s a whole different matter if you buy a park with bad books and then continue on with that business model. Turning old RV parks back to life is great unless you become a mom and pop yourself with bad business practices. Most banks will forgive some element time while you endeavor to correct bad bookkeeping, but that patience will wear thin if you’re talking a decade.
Bad books are a common feature of some mom and pop RV park operations, and they certainly come with some significant challenges. Of course, they also offer some great upside, as these type of RV parks can often be purchased for low prices and with a huge amount of potential built in. Like anything else in life: nothing ventured/nothing gained.