When I first got into the business, I was told about the “gypsy traveler” RV park scam. And recently I have been getting calls from people who were unaware of this age-old way to part a fool and their money. In this episode of the RV Park Mastery podcast we’re going to review what a “gypsy traveler” scam is, how to watch out for them, why they work on unsuspecting buyers, and how to make sure your deal is real and not a forgery.
Episode 13: Gypsy Traveler Transcript
Blackjack has cutting cards. People who play dice games sometimes are known to cheat by having weighted dice and in the RV park industry, there's one big con out there and that's called the gypsy traveler scam.
This is Frank Rolfe of the RV Park Mastery Podcast. We're going to talk about one of the most devilish, one of the most clever, and one of the most destructive things that can happen to you as an RV park owner, and that is to fall victim to something called the gypsy traveler.
Now, what is a gypsy traveler? It's one of the first things I was ever told by a longtime park owner about, and let me tell you how a gypsy traveler scheme works. What you do is you have someone buy a failing RV park for a penny on the dollar. Basically, something often that's completely vacant, or if not completely vacant, maybe with only two or three RVs in it, in poor condition, very low price and typically with seller financing, although sometimes they just buy it for outright cash.
Then what they do is they mow it, they clean it, they put a nice sign out front, and then they get all their friends and relatives who own RVs to park those RVs on the lots. It looks now like a full or mostly full RV park to the naked eye. You see the normal things, sign on the entry, streets in decent condition, lots seemingly mowed, RVs there and so you have to assume this is a successful RV park.
But the problem, of course, is it's not. It's just Hollywood set design. So they normally then advertise the RV park in extremely high and attractive cap rate. Sometimes as much as 20 or 30% cap rate. Now let's all be honest. We know that's at least two to three times the norm. Yet nevertheless, people see those ads and they act upon it because they think this is a get-rich-quick scheme. So they contact the person who is advertising the RV park for sale and the person says, "Yes, my RV park is for sale. Yes, it's a 20% cap rate. So would you like to meet me there to look at it?" They then meet them there or sometimes they don't them there. They just tell them to go out and drive around and look at it.
Now the person looking at buying the RV park will then say, "Okay, this looks really good. Can you give me the financials on it?" They say, "No, we don't have any financials. This is just a quick sale at a really attractive price. Do you want it or do you not?" If the person says, "Well, gosh, how will I get financing?" They say, "Well, don't worry about the financing. How much cash do you have?" They say, "Well, I've got $250,000." They say, "We'll take it."
Now this is even far lower than the asking price. So they were asking a significantly higher amount. Let's say they were asking 500,000 for the thing. Now you're offering 250 and they say, "We'll take it." Now you're thinking, "Why that cap rate isn't a 20 cap. That's more like a 40 cap. I, for sure, have to buy this." So you go and you get your cashier's check for 250,000, wipe out your bank account, go down to the title company. You close, you get a readable title to the RV park and everything's great.
Then, suddenly, all the RVs leave because now all their friends and family pull all the RVs out and take them all home, and you just bought a $250,000 vacant piece of land with RV park zoning and a permit. Now, why do they take the 250? Because they only paid 50 for it just recently, maybe a month or two earlier, before they started to clean it and groom it and get it ready for the scam.
Now the problem is you think, "Well, can I call law enforcement?" No, they've committed no crime. They gave you no financial. Everything they say to you is meted out in just the correct manner that it's not illegal. So really you're only guilty of one big thing and that was not using good common sense in what you've done. Now, the property you bought for 250, it's only worth probably 50. Or maybe you can try and bring it back to life and manage it and full occupancy to get it back to being worth the 250. But any way you cut it, it's a disastrous investment.
So how do you guard against the gypsy traveler? Well, the first clue of the gypsy traveler is when people offer unusually high rates of return. Gypsy traveler requires this to get people to be a little more reckless, a little more bold in their funding. So number one to spot a gypsy traveler is watch for situations where the cap rates are way too high. Normal cap rates on RV parks are a range of probably 8% for the best RV parks, to 12% to the average and sometimes higher, but they never have a two on the front and they certainly never have a three on the front. So things that have close to a 20 or 30 cap rate, you know there's something wrong with it.
Number two, never buy an RV park that has no prior financial guidance. If you want to buy an RV park that's been taken back in foreclosure by a bank, then it's very possible that you would have no operating statements, except during the period where the bank owned it. The bank then will give you correspondingly a low price for it because there are no operating statements to go by.
However, if you're buying something from a third party, you've got to have statements. If they do not have statements, that is a terrible, terrible sign of something bad going on. Also, the person who buys the gypsy traveler typically doesn't do any due diligence.
Now you can find the gypsy traveler in a number of ways with even the most minimal due diligence. You can talk to neighboring property owners to see if they've ever seen anything in it. But the most importantly thing you can do to figure out the gypsy traveler is to look at simply the byproducts of human existence. Remember that in any RV park people do use utilities. What do they use? Well, if this is in the city, water, and whether it's county or city, electricity, for sure. We all know roughly how much water, how much electricity an RV would use. So I can then see by getting copies of the past water, sewer bills and electrical bills to the RV park, whether or not it had occupancy. In the case of the gypsy traveler, what it would show is virtually no electrical usage because there's nobody in there running any power, additionally, no water or sewer usage.
You wouldn't even see it after all those RVs have been parked in there because typically there's nobody in them. They're just storing them there, as opposed to storing them at a mini storage facility. So if you just put in some cursory diligence, you would immediately spot the gypsy traveler scam way, way out front.
Now, what does it mean when you do the gypsy traveler? Does it mean that you are a fool? Yes, it does mean you are a fool. And the problem is, again, the gypsy traveler requires you to not put in any, any thought or diligence into your transaction. That is a terrible, terrible concept. You know, it's funny people put more care sometimes into just household appliances, like a television, than they do in buying real estate. I'm not really sure why that is, but why would you go online and read every review of a big screen TV and study each manufacturer and how many pixels it has, and yet buy an RV park and a gypsy traveler without even cursory due diligence? Just doesn't make any sense to me at all.
Remember that Benjamin Franklin once said, "Diligence is the mother of good luck and the reverse, no diligence is a mother of bad luck." That's what happens with the gypsy traveler. You don't put in the time, you don't put in the effort to find why it is priced as it is and if those RVs are legitimate or not, so in the end, a fool and their money are soon parted.
Again, this is Frank Rolfe of the RV Park Mastery Podcast reminding you that when you see something that looks too good to be true, it typically is. I want to have everyone very aware of the concept of the gypsy traveler. I get a call probably at least once a month from someone who is seriously looking at buying an RV park under a gypsy traveler scam. They just don't know it. So in some ways I'm always happy when they call me because at least I'll be able to educate them and save them from losing their money. But then I also worry about all those who don't call me, who don't learn how this works, do buy those and end up losing their investment and that makes me sad.
So, please, if you see something that's priced insanely low with too insanely higher rate of return, don't just fall for it. Don't just take the bait. Do some diligence, learn what you're doing, learn about the property, make sure it's legitimate and don't fall victim to the gypsy traveler scam.