July 1st marks the half-way mark for 2016. It’s a time to reassess your goals for the year, and how you are doing on achieving them. For some RV park owners, this means working to increase marketing to increase occupancy, or cutting costs to hit the budget. For others, it means increasing your effort to find an RV park to buy. But the meaning of July 1st is a time of renewal, because although half the year is over, there is still half to go. Is your glass half-empty or half-full? Having a positive attitude can give you the edge in hitting your goals, and get you off on the right foot. If you have not hit your goals, then it’s comeback time.
Memo From Frank & Dave
What’s The Worst Thing That Can Happen In Due Diligence?
Benjamin Franklin once said that “diligence is the mother of good luck”. Of course, the corollary is that “the absence of diligence is the mother of bad luck”. You should never buy an RV park without conducting thorough due diligence to verify that everything regarding the deal is in-line with the law and your expectations. That being said, there are certain items that are outright deal killers. So what are the absolutely worst things that you can find about an RV park in due diligence, that would scuttle the deal immediately?
No operating permit or license
You simply can never buy an RV park that does not have the necessary governmental approvals to operate. You would think that it would be impossible for an RV park to exist that was built illegally, but yet they can be found in every state. If you were to go back in time, you’d find that the original owner basically built the RV park secretly over time, without ever filing for any permits, and nobody at the city ever detected it (or if they did, they got paid off to stay quiet). We have seen 200 unit RV parks without any operating license – there’s one in Dallas on the interstate.
Failed Phase I
Back when the government became concerned with the concept of pollution in the 1970s, they started looking into what was buried in the ground. First they started making gas stations replace their metal tanks with fiberglass ones, and remediate any spillage. But then they moved on into all arenas. Today, the only way that you can be safe from pollution remediation and litigation is to perform a Phase I Environmental Study on the RV park you are looking at buying. 99% of the time they come up clean. But if the RV park is found to be polluted, you must cancel the contract immediately. The cost to remediate pollution can be in the millions, and we’ve never seen an RV park that can afford to be cleaned from environmental contamination. If you think your location will support it, you can always do a Phase II to see what the damage is, but it may be a total waste of time and money. While office buildings are a high enough use of land to allow for expensive clean-up bills, RV parks aren’t.
Floodplain and RV parks don’t go well together. In fact, floodplain and any type of real estate is a bad combination. The very fact that the RV park has a floodplain designation will make it extremely difficult – or impossible – to finance or find a future buyer. But before you drop the deal, take a quick look at what part of the property is affected by flooding. If it’s just the amenities, but not where the RVs are located, then you might be able to handle the occasional flood. But just having the label of floodplain is extremely damaging to the deal.
Lack of accurate past financial records
In the U.S., virtually all banks require at least three years of financial performance in the form of profit and loss statements and balance sheets. If the seller does not have this information, then it is unlikely you can get a loan. While this is not always a deal killer, it is if the seller is not going to carry the financing. The minute you see that the seller has insufficient documentation, you need to say “you realize that you have to carry the financing, right?” and if they say “no” then may as well cancel the contract. The only exception would be cases where the price is so insanely low that the bank will finance even in the absence of records – but that price would have to be really, really low.
Failing private utilities
All humans require water to drink and a place to go to the bathroom. Many RV parks are on well water and septic or packaging plant. If these are not working, and there is no clear path to make them work, then you have to drop the deal. Not only would your business not be able to operate in the absence of utilities, but you would face steep fines and legal action over it. Sometimes, these things simply cannot be fixed, such as areas of the Southwest that have had a drought for so long that there simply is no water for a well to tap into.
Declining market dynamics
Real estate is all about location, and RV parks are no different. To succeed, you have to find an RV park that is strong now, as well as into the future as far as you can see. If the market where the RV park is located suddenly has a significant shift due to new RV parks being built or attractions being closed, then you should probably drop the deal. The last thing you want to do is to be stuck with an RV park that has trouble hitting budgets, has no future, and no exit strategy.
Due diligence in RV parks is key. Some items you discover are minor and can be worked around. But others are deal killers and you should act on those immediately. As with all real estate, you really make your profit on the front end by buying only properties with good fundamentals. Problems should be aggressively avoided.
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The Power Of Visual Appeal
Everything in life works better when it is well presented. Since that’s a fact, why not make everything in your RV park look appealing. That’s easy to say, but how do you do that? It’s not that difficult.
Your entry sets the first impression for your business. Make that RV park entry spectacular. If you don’t have much to work with, create the ambience with white vinyl split-rail fencing, a terrific property sign and flags. The entry should garner attention and make your RV park seem compelling to enter. One great way to get some ideas is to research RV parks that you are impressed with – and then steal their ideas verbatim. They say that copying something is the ultimate form of flattery, after all!
Keeping everything clean and well painted
There’s no excuse in an RV park to not have every inch of it well maintained. Everything should have a fresh coat of paint periodically and never a bit of litter on the ground. This is the byproduct of a mindset that “we’re going to keep this place perfect”, in which you refuse to allow the park to look any less than its best. Go visit Disneyworld and look at their property condition – there’s no reason why yours cannot be to that same standard.
There’s nothing better than pretty grass, shrubs and trees. In some parts of America (like the Southwest) this may be impossible due to soil and rain conditions. But even then, you can still landscape using boulders and rocks. Landscaping is defined by Webster’s as “to improve the aesthetic appearance of (a piece of land) by changing its contours, adding ornamental features, or planting trees and shrubs.” This means that simple lack of greenery is no excuse for not making Mother Nature look its finest.
Successful RV parks put their best foot forward, and make a compelling case to stay based strictly on appearance alone. Don’t let customer pass you by because you failed to make everything look its best.
What Is This?
We saw a show recently that included a tour of an RV factory in Indiana. You rarely see such an image on the TV screen. Some might wonder what this is, but it’s the beginning stages of the construction of a motor home. The speed that they can build these items is amazing, and it all ties back to Henry Ford’s early experiments with the assembly line. Can you imagine how long it would take – and the cost – if these were all built one at a time by hand?
Making RV Parks More Kid Friendly
There are a lot of kids in the U.S. – 73,931,848 in all. That’s around 25% of every human in America. So if you want to have a successful RV park, you need to attract this crowd. Here are some ideas for making your RV park more compelling for young travelers (and their parents).
Creating activities that kids love
The good news here is that kids are easily entertained. The amenities that they enjoy are far less costly than adults (a bouncy house vs. a golf course). But you need to add attractions that cater to this younger crowd. Some of the best are inflatable super slides and bouncy houses. These are not only fun but easy to recognize from far away (some smart owners put these items right at the front of the RV park so they can be seen from the highway). The cost is not high and the maintenance is minimal.
But make them safe
Before you even think about adding a kid-centered activity, think through what could go wrong (it normally does). Run the concept by your insurance agent to make sure you’re insured and to see if they have any ideas about problems they’ve seen in the past. If you add activities that are dangerous and someone gets injured, it will ruin your reputation and anger parents that will then never come back. Avoid altogether those activities that simply can never be made safe (such as trampolines).
Give away items
Kids love toys (and so do adults, for that matter). Give them some. Toys are cheap and can be found aplenty at the local dollar store. One fun idea is to buy a big chest and fill it with toys and let every kid who comes to the RV park have the chance to pull a toy out of the chest and keep it (similar to a pirates chest filled with gold). They will be thrilled and the parents will be impressed. But again, make sure that the items are age appropriate, politically correct, and safe (no toy guns, etc.).
Happy parents mean happy kids
Parents tend to favor businesses that make their kids happy. Happy kids are more fun to be around, and give the parents a break from entertaining them. You will find that you can get more happy family customers if you focus more on the kids and making them want to come back to your RV park.Conclusion
Happy kids are a byproduct of a successful RV park. And those happy kids have happy parents who come happily back year after year. Don’t miss out on this audience.