RV Park Mastery: Episode 59

How To Make Low But Not Insulting Offers

There’s no purpose to making offers to buy RV parks unless they get countered by the seller. But many RV parks are only deserving of prices much lower than what the seller is demanding. In this RV Park Mastery podcast we’re going to review the art of making low offers without them appearing insulting, with the simple goal to get the seller to share in our vision, counter our offer, and ultimately end up with a signed purchase contract.

Episode 59: How To Make Low But Not Insulting Offers Transcript

You see it all the time on American Pickers or Pawn Stars. Someone has an object they think is very, very valuable. They give you the whole story of why they think it's so very valuable, they may even throw out the price, which is many, many times what it's worth. Then how do you make an offer when someone thinks something is so valuable? How do you turn that offer into the starting spot of actually making a deal? How do you make low but not insulting offers? This is Frank Rolfe of the RV Park Mastery podcast. We're going to talk about the everyday occurrence if you're looking at a lot of RV parks to buy where someone has an idea of a price, it's just way, way too high and you got to bring them back down to earth. So first question is, why do people get some of these prices so out of whack? How can someone evaluate a property at a three cap or even worse? Well, what happens is, if you're a seller, you are not very fluid in the market. So your typical seller only sells an RV park once, that's it. They bought the thing or they built the thing from scratch, they run it for 20 years, 30 years, 40 years.

So when it comes to day-to-day operations they're pretty good, but when it comes down to selling something they've only ever done zero times at that point and now that they're going to finally sell the RV park, this is the first time ever they've done it. So they don't really know how to derive the value. Some of these sellers out there, they just don't even understand what a cap rate is, cash on cash, cash flow. They have just no idea. They just literally pull a number out of outer space. And since we all know that American media loves to portray that everyone is so crazy wealthy, they typically always want something with a million on the back because heck, it's all you see in the media, everything seemingly is worth a million dollars, even a Dixie cup. So they're often suggestible on what the price could be. Maybe they've talked to somebody else with a much larger RV park that sold at a much larger price and they've decided for some reason, they're the same. It's hard to say why the sellers get the prices so screwed up, but the sellers with this prices that are all too screwed up, typically fall into one of two camps, either the ones that are flexible, and the ones that are not flexible.

Now, if you've ever watched The Pawn Stars episode where the guy brings in the Johnny Cash Rolls Royce. It's an interesting glimpse into human psychiatry. What you have is a guy brings this old black Rolls Royce into the Pawn Stars shop, and they say, "What do you want for it?" He says, "Well, I want half a million dollars because this is Johnny Cash's Rolls Royce, and I think it's worth half a million dollars." And he thinks this, because there's a little brass plate on the dashboard that says Property of Johnny Cash from A&M Records. So they call in a car expert, he walks in, looks at the car, doesn't even have to open the door, he goes, " Oh, a Johnny Cash Rolls Royce?" They say, "Yeah. How do you know that?" "Oh, well, because there's about 10 of these things, they're really not that rare. Every time Johnny Cash had a gold record, they gave him a new black Rolls Royce with little brass plate on the inside that says To Johnny Cash from A&M Records, right?" And they say, "Yeah, that's exactly correct. That's what's on this one. So what's it worth?" He goes, "Well, one of these sold last month at an auction I was at, and I thought around about 50 grand." They said, "Okay, thanks." So the guy turns to the seller and says, "Okay, he thinks the car's worth 50 grand, I have to make a profit, I'll give you 30 for it." And the guy says, "No, I want a half a million dollars firm."

That's a classic example of a seller who just does not listen. They know better. It's clearly ridiculous, the price, but they're unflinching, they won't drop the price a penny. That kind of seller is impossible to work with. You can make lowball offers, they would consider an offer $1 less than the asking price a lowball offer. They're never going to counter it. They're never going to sign an agreement. So just forget that whole crew. So when you have a seller like that, don't feel bad if you can't get them to do anything. No one can get them to do anything. The only way those RV parks ever get sold is ultimately upon their death when the heirs do not have such a lofty impression, or if that person finally realizes it's never ever, ever, ever going to sell and then suddenly drops the price down. But that's a very, very hard seller to succeed with.

But there's another kind of seller out there. That's the one who's more impressionable, the one that actually looks and thinks and sees all the signals around and what things are worth. In the case of the Johnny Cash Rolls Royce, that seller would have said, "Oh my gosh, I had no idea they're only worth 50 grand. I don't know where I got half a million from. Let's see 30,000 from the car. Could you go to 35,000?" That's the kind of seller you can do a deal with. But what do you do when that kind of a seller, someone who's smart and understanding still has the price all wrong? Well, you can't pay what they're asking because you'll go bankrupt. So you've got to make an offer, and it's going to be really, really low compared to what they want. And remember, when you make an offer, an offer is of no value, unless the seller counters it. Or better yet signs it. So throwing out lowball offers, well, that isn't gonna get you anywhere unless you can make them not just some goofy offer they throw in the trash can but one that actually gets countered. So how do you make the low offer without being so insulting that they won't counter it? Well, here's how you do it. Right. The first thing you have to understand is that this is a moment where you must be inclusive. It has to be not just you versus them, it has to be you working as a team. We like to call that win-win deal making.

So you're going to start off with an affirmation of your intent to do win-win deal making. You're going to say, "Look, here's the deal, I'm coming up with a lower price than you've got, but I want you to get the most you can get for the property, I'm not trying to rip you off, I'm not trying to give you a ridiculously low number, I'm just trying to tell what I think it's worth, and I think that'll be backed up by an appraisal at some point, but it's not because I'm trying to do win-lose negotiating with you. I am not in any way try to deny you of your rightful value." So let them know on the front end how you're going to approach this situation. You're trying to approach it in a win-win, inclusive manner, where you're working like a consultant for the seller. Tell them, what the value is or what you see the value as being, but not in an adversarial relationship. It can't be just a deal if you're going to throw out a price with no reason why, and then expect them to take it, that's insulting, they won't do anything if you go that route.

Next, what you're going to do is you're going to tell them how you came up with that price. You want them to think, "Oh, okay, this is a fair deal." Well, explain to them why it's fair. They don't know why it's fair because that's why the price is so high to begin with. Don't think to yourself, "Well, I can't share with them how I come up with my values." That works really good in some book from Barnes and Noble on the self-help section on negotiating, but that doesn't work at all in this application. So go to them and say, "Look, I know you're asking X, but here's the deal. If I paid you X, I wouldn't be able to cover the mortgage. Here's your revenue in, here's the expenses, this is the net amount that's left over, I have got to cover the principal and the interest on the loan with a coverage ratio of 1.2 to 1.25 times, and that's to require this much a month of net income. And I have got to have some kind of return on my investment. So when you add it all together, here's what the price is, this is the most the property could actually support in a mortgage."

And a good seller will look at that and go, "Oh, Okay, I got it. So yeah, I can work around that, I'm flexible. Okay, let's see. I want a little bit more." Now you're going to get a price that's going to be countered. If you don't tell them how you came up with it, if you just say, "Yeah, I know you're asking X, I'll give you 50% of X." Well, they'll think you're just trying to low ball them. You're not a legitimate buyer, you're not being fair, you're not being considerate, they're going to throw you out the door. So it's very, very important that you show them how. And then finally, if they still don't go with what you're saying, use this phrase, say, "Well, can you show me where I went wrong? Can you show me how you value these RV parks? Because I wanna buy an RV park and I must not have a mastery of how it works. Can you show me how that happens?"

Often when you spin it around and you make the seller try and show you how they came up with the value and how it ties together, they realize when they're cranking the numbers that they were wrong, they forgot some things, they forgot about property tax going up, they forgot about the cost of a manager because they self-managed, or mowing because they mowed it. So often when you get them in the loop and them thinking about how this is all going to go down and how you're going to meet that price, they suddenly realize the error of their ways and they'll change.

So that's how you make low ball offers. You don't do it in a manner of just making a low ball offer. I never would condone that. If someone has an RV park and they say, I want $400,000 for it, and it's worth $400,000, don't low ball offer them. That's stupid. Warren Buffett would slap you in the face and say, "You're defying all of the Warren Buffett principles of investing." Warren Buffett always said, pay a fair price. So that's what you want to do is you want to pay a fair price, but often to get to that fair price, you're going to have to work in a bit to get that to happen. Doesn't mean there's anything wrong with that, it's very common when looking at RV Parks that there will be some price discrepancy, but you got to be the grain of sand that creates the pearl and the oyster. You have to work with them to let them know what the value is and explain completely why in great detail. You're not holding back any business secrets at all. The entire time you're doing this teaching expedition, you need to keep affirming with them you're a win-win deal maker, and of course, the whole time you're doing that, you're also bonding with them.

As I've discussed a million times, bonding is one of the most powerful forces in all of RV Park buying. One final note, don't forget that when you make that low offer, it's of no value at all, unless you can get it countered. Sometimes, even though you can't come up with the price you hope for, you might still tie it up if it's relatively close, and still try and renegotiate things down later if you can't fix it, or as happens sometimes with RV park deals, you find in the end that you are wrong in what you were doing, the costs were lower, the rents were higher, and the deal makes sense after all. This is Frank Rolfe of the RV Park Mastery podcast. Hope you enjoyed this. Talk to you again soon.