RV Park Mastery: Episode 56

Lender Etiquette

Virtually every RV park sold in the U.S. revolves around a mortgage. And there is a certain playbook required to successfully get a loan and maintain a good relationship with your lender. In this RV Park Mastery podcast, we’re going to examine the protocol to obtain a loan, build your lender relationship, and retain the loan upon its renewal.

Episode 56: Lender Etiquette Transcript

So every time that somebody tells me they could not get a loan on an RV park, it's easy for me to see why, this is Frank Rolfe with the RV Park Mastery Podcast. We're gonna be talking about lender etiquette, the things you need to do and stay away from doing in order to get a loan, and maintain a good relationship with your lender. Now, everyone who buys an RV park typically uses leverage, they use bank debt, they don't buy things with all cash, and there's a good reason for that, number one, well, it takes a lot of cash number two, your yield is higher if you use leverage, that's the beauty of real estate, is you can maximize your returns by taking advantage of that thing known as leverage. So if we all need a loan and if a loan is a big part of buying the RV park, then we should all strive to do the best we can to get the loan and to maintain the relationship with the bank. So let's start off with how do you get the loan. Banks have only one goal, and that is to get a rate of return on their capital without losing the capital, banks do not have any upside in your deal whatsoever, so if you buy a mobile home park or RV park and it doesn't do well. What happens? Well, they lose their capital, they put into the deal, but if you're doing exceptionally well with your RV park, what do they get? Well, they get none of that upside whatsoever.

So as a result, banks start life from a very pessimistic view point, they are very conservative. You may take gambles because you get the benefit at the end, but they don't get the benefit, so they just don't want to be gamblers, so knowing the banks don't wanna be gamblers, then how do we go ahead and position ourselves best to take advantage of the fact that the bank just wants to hear how they can safely get their principal back plus interest over time. Well, clearly, the first thing you wanna do is to present the facade to the bank that you are in complete agreement with them, you are doing everything possible to cover your downside. Everything you show them in the numbers, even in the basics of the park, don't give them erroneous photo showing how nice this RV park is when it really isn't quite as nice, be completely honest and straightforward with them, don't lead them in on any surprises, they like to know that you are being a realistic player, that you understand what you're buying and you understand how to operate it and how to make money with it.

If you give them a false sense of security, that it's somehow a nicer property, than it really is, upon inspection, they will think, therefore, you are a little bit out of touch with reality and be not as favorable as a lender. Your bank proposal itself should encompass, A, the story of why the bank should wanna do the loan, the good things about lending on an RV park, B, a factual representation of all of the numbers concerning the RV park, C, very realistic photographs of the park and a map of the park, and, D, throughout the presentation you should pepper it with plan Bs and plan Cs if things don't work out as you hope, because that's what the banker wants to hear, they wanna hear that you are really, really focused on the downside, they don't care so much on the upside, they would rather see 10 pages of nothing but downside items, then 100 pages of upside because they don't share in that upside whatsoever. Now, when you find the lender that wants to go ahead and do the loan, what do you do, well, then obviously you want to stay in their good graces, anything they request get it to them, and make sure it's exactly correct.

If you don't follow the guideline of always being honest with your bank, you will in fact be guilty of doing what's called loan fraud, and you don't want to ever do that. That is stupid. That is dangerous, and there's no benefit to doing that at all, tell them exactly the truth, if the property makes X dollars, tell them it makes X dollars. Don't puff it up.

Also remember the bank is probably going to wanna see the last three years financials and tax returns from the seller, if you cannot provide that, you better have a good reason why you can't, and if you do provide it and it doesn't match to what you're saying, you'd better be able to explain what the differential is. Those are the kinds of things that really disturb lenders is when you set expectations at a certain number, but you cannot deliver that in in a factual form in the form of tax returns or P&Ls, not all sellers will give you tax returns and P&Ls, and sometimes you'll just have to make do with what you can get, but most banks prefer a three years past track record, and if you can't provide that, they may not make as good a loan as they would if you could. Also, once you have the lender on the hook and you have the lender and they're gonna go ahead and do the loan, you always wanna make sure that you treat that lender with your best VIP treatment, because lenders are few and far between in every industry today, and you're probably gonna go back to that same lender for your next RV park deal if you buy a second or a third or a fourth or a fifth. It's very bad strategy to do a loan with a lender and then completely abandon the relationship. The last thing you would wanna do is to get the loan, and never talk to your banker again.

Why is it such a bad idea? Well, you therefore have not forged any relationship with them, and it feels a little like you were using them, right? So when you were getting the loan, then you were all over them, talking to them, giving them information, you're gonna be their best friend, and then the minute the loan closes, you never even called them, that is not a good way to build the relationship so how do you build it? Instead, what can you do? 

Well, talk to them frequently, even post-closing, after you've bought the RV park, call them, send them information on the park, send them quarterly reports if you like, take them out to lunch, if you're in that general area, these little bits of contact do two things, number one, it makes a lender more comfortable with a loan that they made, and number two, it opens the door to you and your continual dialogue if you need additional RV park loans, which you probably will. Many people who buy RV parks after they bought one successfully, they always tend over time to go on to buy a second and a third, and who knows how many, and that lender may be your go-to person to go back to over and over and over. Now, hopefully, your lending will always go well for yourself, and if it does not, it's that relationship that you've built and that honesty, that will save the day once again, if you ever had a problem, let's see, your RV park is in a flood plain, in a horrible Hurricane Harvey-styled five feet rain falls, you have a much better chance of getting that loan modified or extended if you have that great relationship, than if you do not.

And none of us in life ever know what happens day-to-day. You see that right now in America, no one has a clue what's going on. You may say, Well, my park would never have a problem. You don't know that for a fact. We live in a world today that is so destabilized, there is no safety net, no security that anything is going to work out as anyone had hoped, and if it does not, if you have that strong relationship with the bank, you can go back to them typically, and they will work with you. No bank wants to have a loan default, all banks want to have every loan performing, every bank officer is criticized mightily with even one loan default. So they want you to succeed. If you have that good relationship, you can go back to them comfortably and say, Look, this has happened, here's my plan, Here's how I'm going to fix it, and I need you to extend that loan and make the payments a little lower, or maybe even, let me put a payment or two back on the back end of the loan while I go in to fix whatever has transpired, but again, relationship is absolutely key.

You know, in life, in RV parks, so much of everything is revolving around bonding, yet so few people bond with their bank officer, and that isn't smart. We all bond with sellers, we all bond with our spouses, we bond with our friends, but you need to put a little more bonding energy into bonding with your banker. Now, how do you bond with a banker, just that talk to them frequently, eat a lunch with them if you can, send them notifications, send them letters, let them know what's going on. Many people forget, after the deal closes that their lender even existed, and that is never a very good and proactive strategy. Your lender should always be number one, going forward with your loan, to keep that lender happy, you always wanna provide them all the information that's required, and on the due date, if they wanna see periodic financials on a certain date, you better beat that date by a few days, you never wanna be late on delivering items, when you're late, it scares people, they're afraid if you're late, you're trying to hide something, or they're afraid you're out of control and don't even know how to do the financials, so make sure that you always do that, remember that your bank officer isn't the boss, typically the boss is going to be the board of the bank and the bank president.

And they view very unfavorably on loan officers who have clients who are not doing what they're supposed to do on the correct dates. Your bank will also come out and typically drive your RV park periodically, maybe once a year. Make certain if you can, therefore to keep the quality up at all times, you never know when they'll drop by, some banks drop by unannounced, others will give you advanced notice, but nevertheless, you've gotta make sure the park is always looking at it's finest because if the banker pulls in on the one bad day when no one's doing anything they're supposed to be doing, it will reflect very unfavorably on you. The bottom line to it all is that banking is a very, very important skill in the RV park industry, but yet it's not that hard, it's not that complicated, think like a banker, think like someone who is not a risk-taker, provide the bank with everything they asked for on the due date or before, if you follow these simple guidelines, you can have a terrific relationship with your bank and a great relationship leads to more lending. This is Frank Rolfe with the RV Park Mastery Podcast. I hope you enjoyed this. Talk to you again soon.