Most of the time you are buying from the original mom and pop builder of the RV park. But sometimes you end up with the next generation – which could not be more different in goals and personalities. So how do you bridge the age gap? In this RV Park Mastery podcast we’re going to give you real-life tips on cutting deals with the heirs.
Episode 91: How To Deal With The Next Generation Transcript
Mom-and-Pop sellers don't live forever, and sometimes you end up dealing with their kids. This is Frank Rolfe, the RV Park Mastery podcast. We're gonna talk about dealing with the Next Generation, dealing with the eras that inherent RV Parks, and what you have to know about how to work with them successfully. Now, we've been in the RV Park industry now for about 30 years, and we've had many, many cases, so it's very easy for me to discuss this with you because so many examples come to mind, but I'm gonna break it into three primary categories, so we can focus on each of those unique main sectors, so the first is when you're buying the RV Park from the get-go, and the kids are positioned as rivals.
So what happens here is you talk to Mom-and-Pop and you think you're bonding well with them, and then they say. Hey, can you give me that in writing, maybe like a letter of intent, and I can tell you now, the letters of intent are traditionally always been used by Moms-and-Pops as a lever, as a tool to elicit offers from people they have even greater bonding with; friends of theirs that they've had for years, family members, and so when you give her that letter of intent, they typically run to those people and say, Can you beat this? Can you match this? And one group they typically always go to, if it exists, are there kids, they'll say, son or daughter. Hey, I got this offer to sell the RV Park, my dream was you would always carry on the family tradition of running it, carry on the torch of that huge asset that I built up over these years, what do you say. Can you match the offer?
And what do you do when sometimes the Mom-and-Pop even tell you that's what they're doing, they say. Well, I appreciate the offer, I'm gonna have to run this by my son, or by my daughter and get back to you. Well, then what do you do? Well, in those cases, just hang in there, normally what happens is they go to the son or the daughter, and they're told. Well, gosh, Mom and Dad, you know, I really don't have an interest in the RV Park business, or I just don't think I want to be my own boss like that. I like getting a nice normal paycheck, I don't really wanna step into your shoes and do what you did, so... And not 99 out of 100 cases, they're not going to match your offer, they're not going to go forward, but if you push the issue, it's very dangerous, because if you push the issue and you say. Well, you know I'm a better buyer than your son. Well, you just really messed up your relationship, so instead you just gotta hang in there and let things work it's normal course, and lo and behold, you will probably come out the victor because they don't really wanna buy that RV Park.
Next, When you're trying to buy the Mobile Home and RV Park with the kids as owners, so in this case, what you got is, you've got the next generation who's come into power because Mom-and-Pop have died, or Mom-and-Pop have become infirmed, and now the kids are the sole decision maker. So now what do you do? Well, the first thing you have to know is it typically the RV Park owning kids are really just in it for the cash.
So seller care typically goes completely out the window in those instances, because they just want money, they didn't build the business and they don't really care what happens with it, they just wanna get money. So what does it mean? It means when you're making your offer, feel free to give them an offer that's a cash price versus terms with the cash price much lower because they're gonna go with cash price and you can negotiate harder with them because typically they just want the money and they want it now, there's nothing more important to one of those heirs than having that check hit their bank account quickly, so they can pay down debt or go buy something. Also, remember that typically those situations reveal a huge amount of net income defects, because normally, if there's anyone batted operating in RV Park is the next generation, if Mom-and-Pop weren't bad enough, give the reins over to the next generation who has no knowledge of the business, and no skills and no real interest, and they're just kind of kicking the can down the road waiting to sell it, and you will unlock a world of NOI improvements you can make, ways to improve the marketing, thus your revenue and occupancy, and typically lots of costs you can cut.
We've seen crazy things over the last three decades, situations where the kids were doing things so dumb, it seems to defy explanation, but somehow they just weren't paying attention from their parents, and so they just do terribly crazy stuff, and it gives you a huge opportunity to go in and make that deal a really, really good one. The final issue when you have to typically work with the next generation is when you buy your RV Park from a Mom-and-Pop they have a seller note, and now suddenly you get a call, that Mom-and-pop have died, and they've got a note and they wanna cash it in, it's a very, very common issue I'd say probably there's never been a case of an RV Park where Mom-and-Pop didn't die, and suddenly you get the call say. Hey, we know that Mom-and-pop entered into this lengthy note with you, but hey, you know what, we really would just like to get our money. So what do you think, could you just go ahead and cash us out please.
So what do you do when that happens? Well, this is a great opportunity for you because normally you can get a really big discount when that happens, how big? I would say we average probably 20% to 25% discount in those cases, but there's been times you can get as much as 50% off. Why would they do that? Well, because they just want the money. Many of them could actually get more money if they sold that first lien note to those people who buy first lien real estate secured notes, but they don't know how to do that, and it's a lengthy process, and the person would have to go out and vet the proper and you don't have to do any of those things, you already know the property completely, so there's no faster way to get the money then to go to you and see if you would pay them off, but the key item is when you do it, don't pay them off at par, get a big discount. Remember that they're the third one in re-trader deal, the deal that was crafted between you and Mom-and-Pop, and when you go to re-trade deals, there has to be a winner on both sides of the equation.
You've got maybe a multi-year seller note, and if you go to pay it off, sure, your interest rate will be a lot higher, a lot more stress on you to have to go out and find a bank and do it, so the corollary is you need to get a really big discount on the note, and you can say to them exactly that, say Well, look, right now I could do nothing than just keep making my regular payments at the slow interest rate for the X number of years. And now you're asking me to go out there and do all the things I hate, build a book about the RV Park and go to the lending community and find a loan, and then ultimately have to entail an attorney to read law documents and get it and get the deal closes and then pay you so I got to get a big discount to make that worth my while.
And don't forget the whole concept of negotiating, you gotta start low and you can always go up, but if you want a certain price in mind, you can't start there. So if you wanna get 20% off or 25% off, you might initially ask for maybe 50 just to see what happens, normally the heirs are so excited about getting the money that they will agree almost anything. And also, don't forget your bonding was with Mom-and-Pop, not these kids, so even though you had a great vibe is just Mom-and-Pop, you don't really know this next generation whatsoever, so don't feel morally responsible for the next generation, if you can get that note for 50% off, by all means do it, you don't owe any loyalty to anyone because you did not negotiate the deal with that group, you did it with the original Mom-and-Pop. The bottom line to it is that it's just a fact of life, we all have biological clocks, none of us will live forever, and often when you're negotiating or even if you've purchased the RV Park, the next generation may be injected into the equation, but that's okay, there's typically, a huge opportunity to be had from the heirs to Mom-and-Pop. This is Frank Rolfe the, RV Park Mastery podcast. I hope you enjoyed this. Talk to you again soon.