RV Park Mastery: Episode 7

How To Think Like A Banker

We all like to emulate certain people – and one that you should definitely want to be like is your banker. If you can think like a banker, you’ll go far with your RV park career. So why is that important and how do you do it? In this episode of the RV Park Mastery podcast series, we’re going to discuss how smart RV park owners try to mirror the desires of their banker and share the same thought patterns. 

Episode 7: How To Think Like A Banker Transcript

Websters defines emulate as, "To match a person, typically by imitation." So who do you, a successful RV park owner, want to emulate? Who do you want to be like? Well, in today's RV Park Mastery podcast, we're going to be giving you the answer. You want to be like a banker. You want to always think like a banker throughout your RV park investing career. That's the best person. You want to be just like they approach deals. Why? Because that will give you greater security, greater liquidity, and greater chance for success.

So how does a banker look at an RV park loan or RV park investment? Well, there's four things that bankers do that I think you should know about and that you should also adopt. Number one, the concept of safety. Now, there's an old saying that before you can have return on principal, there has to be a return of principal. What does that mean? Well, it means that basically, if someone wants to say, "Hey, I made an 8% return on this loan," you only made that at the end of the movie, when you got the loan back. Then you made your 8% return. However, until you get the principal back, you have nothing.

And don't forget that the bank doesn't share in any of your concepts of success. All the bank is going to get, no matter what happens with your RV park, is they're going to get their principal back, plus some interest. They don't get any upside. If you buy that RV park and you sell it for a million dollars 20 years from now, they don't get any percent of the million dollars. So what do they really have? They just get that small amount of interest. And right now it's the smallest it's ever been in American history. Interest rates are the lowest they've ever been. So basically, a bank is only going to want to make a loan in an RV park when it feels a hundred percent certain it will get its principal back.

Now, how do you do that? How do you know you can get your principal back? Well, you only buy RV parks you have vetted through due diligence and that you know, with very good certainty, that everything will work out like you planned. And on top of that, you want to think like a bank. You want to have a plan B and a plan C. What does that mean? It means if things don't work as you plan, you can't just give up. You can't tell the bank, "Oh, well, I thought I was going to be able to increase the occupancy by 20%, but I failed." No, you have to say, "I didn't hit it yet, but here's my plan B to do it. Here's my plan C to do it." You have to be resilient.

So safety is a key item. Anytime you're looking at buying an RV park, you have to believe in your heart of hearts, with a hundred percent certainty, that you are going to succeed at that and that you are going to get your down payment back, and interest and a profit. Do not get involved in risky stuff. Not a good idea. Benjamin Franklin once said that, "Due diligence is the mother of good luck." He never owned an RV, but he would have been an excellent RV park owner and an excellent banker, because that's exactly correct. You make your own luck. When you check out all the angles so that you know if the revenues are accurate and the costs are accurate, that the permits are valid, and every other item falls right into place, then and only then do you have safety, and you never want to get involved in a deal unless you have that form of safety.

Item number two that bankers do, bankers are always concerned about quality. So what does that mean? It means with an RV park, they want to have something that they consider to be investment grade. They don't want just a raw field, a big dirty field that some RVs pull in with a little power source per lot, no real defined roads, infrastructure, amenities. They don't want that. There's no quality in that. They've learned from experience that quality assets are much safer than non-quality assets. So therefore, the question is what makes an RV park have quality? Well, I think we all know the answer to that. You can drive into any RV park right now, and you can tell me, just as you pull in, in three seconds, this is a quality product or this is not a quality product.

The quality can be based on many items. The location obviously is big, but so is the infrastructure. Just the way the property is presented, its marketing, its signage, the drive up appeal, all of these various items mean quality. The bankers, in tough times, like right now during the COVID-19 pandemic, what do bankers do? Bankers do what's called a flight to quality. That means they favor loans that are based on quality properties, and the ones that are not quality fall into disfavor. They don't want to make those loans anymore. So that's why quality is key. When you're looking at an RV park, if it has quality, it will always give the ability to sell it or to get a loan on it. It will always attract new customers. It will always retain old customers. It will always have good word of mouth.

But if it's a low quality product, if it doesn't have a great location and doesn't have very good amenities and doesn't have very good infrastructure, then it's not typically going to succeed. Now, it might succeed in good times, but it won't succeed in bad times. And that's what bankers are always worried about. Not the good times, not like things were in America, pre March, pre COVID-19. They're more interested in what happens after you have recessions and depressions. Now, of course, COVID-19 has not really impacted RV parks at all for the negative. In fact, some would say it's done a lot of great things for RV parks. But nevertheless, those low quality RV parks will at some point meet a time in American history, such as the Great Recession in 2007, 2008, where things are not all sunny, and those low quality properties will always suffer the most. So always focus on quality, just like a banker does.

Number three, bankers hate being in time crunches. They just hate it. When you talk to your bank, they are going to try and give you so much extra fluff on timeframes, because they don't want to be boxed into a corner. Some people say that bankers live for the weekend. Well, there's nothing wrong with that. Maybe they do live for the weekend. But one thing they like to do is they like to stay stress free. All successful RV park owners should always strive to stay stress free. So how do you think like a banker in this regard? Well, give yourself plenty of time. If you're looking to buy an RV park and you ask the bank, "How long would it take to get a loan on this RV park?" And they say, "Well, I think I could get one in 45 days," then put 60 in the contract. Maybe even more than that. And that doesn't matter whether you're buying one new or doing a refinance. Don't box yourself into a corner. You want to make sure that at all times, at all places, you are never under an extreme amount of stress.

There's nothing good in stress. There's no money in having stress, and bad things happen when you get stressed. If you're trying to get a loan and you're under stress, you've got to close on a certain day, and the banker says, "Well, we want to change the terms," or "We want to do this or do that," you have no room to negotiate if you didn't give yourself plenty of time. What are you going to do? Nothing. You have no time to maneuver. You have no way to pivot. What if, for example, you want to get your RV park refinanced and you can't get a loan that you find acceptable on the refinance? Well, if you give yourself plenty of time, you can go out there and sell the RV park to somebody else before the note comes due. Always give yourself plenty of time.

I'm not talking about losing your sense of urgency. You don't want to lose your urgency. That's what allows you to be competitive. That allows you to get there on a Friday with the contract, because you don't want to wait til Monday, because someone might steal that RV park from you. But it means give yourself plenty of cushion. Give yourself plenty of leeway, because time moves quickly. And right now, during these COVID-19 times, it's very hard to get things done properly. So give yourself plenty of room.

Finally, bankers always have no hesitation in canceling the deal. Now you, as the buyer, you'll be all excited about that RV park. And sometimes you will blindly go where you shouldn't. You'll find things out in due diligence and you'll say, oh, well, I'm going to buy it anyway, because I already told everyone I was, and maybe it will all work out in the end. Well, bankers aren't like that. Bankers will just literally pull the plug two seconds before closing, if they get cold feet. Now, they may not cancel the deal. They may say, "Well, we want to reconsider this. We want to go back before the committee again." You need to adopt that same kind of idea. When you're buying that RV park, and you're doing all that due diligence, and you're gathering that gut instinct of what's good and what's not, if your gut instinct tells you don't buy it, be like a banker, say, "Whoa, something's wrong here. I'm not feeling good about this anymore. I'm not excited about this anymore. I don't think I want to buy this anymore." Be like a bank. I know it sounds cold. It sounds cruel. The broker will be calling you up. "When are we closing on the RV park?" So will the seller.

However, you have to let those people understand that they are not the one who are sticking their neck out. They have no skin in the game at all. Five minutes after closing, the broker gets his money. The seller gets their money. They don't care what happens to you. So you've got to look out for yourself, and that's what banks do. Banks, even though they may say, "Yeah, we'll do the loan on that RV park," and "Oh, it'll be great," and all this different stuff, and "Yeah, we're going to close on this date," if anything pops up in the interim, whether it's a bad appraisal, some other bit of bad news, something that makes them doubt whether you even know what you're doing, they will think nothing about shutting it down. That's just the way they operate.

Why do they do that? Because again, they have no way to profit from your deal except getting their money back and a small amount of interest. They don't like to gamble. They don't see the upside like you see the upside. You may say, "Well, it's a little bit risky, but hey, I've got a plan." Well, they don't have a plan. All risk means to them is if that loan goes bad, then they blew it, because the amount of money they lose off the money they loaned you could wipe out all the profits from a huge number of loans for who knows how long. So again, don't buy it if you're not happy.

I and Dave have both bought properties in the past, in our early days, that we were not excited about. We did not have a positive gut instinct, yet we closed on them anyway, because everyone was pressing us, the broker, the seller, even the banker, but we didn't feel good about it. And every time we closed one, I closed one like that, and Dave closed one like that in our early careers, blew up in our face. We should not have done that. Be like the banker. Be ready to coldly push the button, the eject button, at any moment up to the very moment you sign the closing documents. If you do not feel good, there's new information that has been interjected in the interim, you stop that thing. You hit the brakes. You say, "I'm going to think about this. I don't know if I'm going to go forward or not." And then here are the things I need to make that decision. Make a little list, but you have to approach it scientifically. Do not get emotionally involved.

Good banks never get emotionally involved. They may like you as a borrower. They may like to be friendly, but at the end of the day, they're not going to do anything dumb, dumb for the bank. Not going to happen. So you have to always do the same. Wear that white lab coat, do not do anything that scientifically is wrong, wrong for you as an investor to do. Bottom line in all of this, think like a banker. It's one of the best approaches you can have as a successful RV park investor. This is Frank Rolfe with the RV Park Mastery podcast. Hope you enjoyed this. Talk to you again soon.