RV Park Mastery: Episode 23

Lessons Learned From Failed RV Parks

Most RV parks are successful, but there are some that just don’t work out for any owner. So what are the attributes that make an RV park a loser, and can those be fixed? That’s the topic of this RV Park Mastery podcast. We’re going to explore what qualities make RV parks too dangerous to handle, as well as strategies to mitigate those risks. Since the whole goal of buying an RV park is to make money and have a happy life it’s imperative to acknowledge what could potentially stand in the way.

Episode 23: Lessons Learned From Failed RV Parks Transcript

Most RV parks do well, but some fail, and it's very important to learn from those mistakes. This is Frank Rolfe of the RV Park Mastery Podcast. We're going to be talking about lessons learned from failed RV parks. Most of these came from stories from bankers or people who had purchased RV parks in foreclosure, because let's face it, there's probably no greater affirmation that you did a bad job than to have your RV park foreclosed on after you buy it. So let's jump right into what are the key things that I've seen or heard of failed RV parks. And then also, if there's a way to mitigate those issues.

The first one is just overpaying for the property. That's the cardinal sin. You pay too much, as a result you can't make your note payment, nothing goes your way, nothing works for you because your expenses exceed your revenues. Or the difference between your revenues and your expenses is not great enough to cover your debt. Now how does that happen? How does someone come to pay too much for an RV park? Well, that just comes back to strictly just the numbers and their ability to forecast the budgets. If you don't feel like you've got the math skills to do a good budget, you need to have somebody else do it for you. Because saying you didn't do well in math and only did well in English in school, that is no excuse when it's time to make your monthly note payment. So you've got to make sure you've got a good budget.

Now a good budget should have three categories. Best case, worse case, and realistic case because we don't all hit all of our targets. So you want to make sure interesting he worst case scenario that you're paying a price that will allow you to get that note paid. You cannot have it where you at any time are in a position where you can't pay the mortgage. Your best case should be wildly profitable to you, but then your realistic case is somewhere in-between where you're covering the note and making plenty of money in addition to that. But if you aren't doing a best, worst, realistic budget or even a budget at all, there's absolutely no way you're going to succeed because unless you're enormously lucky none of those numbers are going to work out for you.

Next, bad location. Now, real estate is all about location right? Location, location, location. Some people lose sight of that and they think that RV parks for some reason are not reliant on a location and clearly that's completely wrong. Sometimes we'll buy an RV park that seems inexpensive and we'll try to sell themselves on the fact it will work out even though it has a bad location. It's not going to happen. If you have a bad location, and that can be defined many ways. With an RV park a bad location might be a location that no one really wants to stay. There's nothing to do there, no one wants to head there, it's not really a destination. Or even in a desirable area it can be a terrible location that's very, very hard to get to, or it's very, very hard to find, or there's actually no road that really gets you anywhere that most people want to travel. Roads are too narrow, they're gravel, no one wants to drive their RV down it. So the bottom line is if you have a bad location once again you're going to fail. And no, there really isn't a way to mitigate that one. Unlike the budget where yeah, you can do better financial planning to make sure you pay the right price, there's no way short of digging up the land with some kind of giant helicopter and moving it to a better location that you can solve location. So location, if it's bad pretty much you shouldn't be buying that RV park. No way that's going to work.

The third item is water, sewer, electricity, any kind of utility system failure or continuing failure. If you do not have the ability to have a working well, if your electrical system is breaking and going out constantly, that's not going to work for you. The problem is some buyers of RV parks don’t do any due diligence on those utilities, and they additionally have no capital to fix them when they go out. So what happens is they can't supply the most basic of necessities. If your customers find that they don't have electricity, they're going to be very mad, and they're going to tell all their friends and neighbors on social media, "This property is a disaster." In some cases, you may end up getting fined by such groups as the EPA if your water contains substances which you're not supposed to drink. So the bottom line is you've got to in due diligence make sure that all of your utilities are in good working order. If you find out that they're not, yes you can mitigate it but you're going to have to budget accordingly. You're going to have to drop the price enough to put the capital in to fix that. You also have to make sure during due diligence that you can fix them. Typically you can, it's just a matter of money but again if you don't budget for it you won't have the money to fix it, and then you'll be saddled with a failing RV park that just won't get any better.

Next, bad management. Now what's bad management in an RV park? Well, I think you know what that would mean. That would mean such basic necessities as you simply don't answer the phone or don't have any kind of working reservation system. Or greeting your customers with a snarl and not having any goal of making sure that they are in any way happy with their stay. Maybe it's simply the fact that you're bad at managing the staff. The staff doesn't tend to anything, they don't mow, they don't clean any of the amenities, nothing is working out. So there's many ways you can be a terrible manager. All those methods end up in a crisis, in a disaster.

We once bought a property in foreclosure. It was the oddest thing. Normally, you buy a property in foreclosure there's something terribly wrong with it and you're trying to debate well could I buy it at an inexpensive price from the bank in foreclosure, and then make necessary changes to it to bring it back to life and be successful? This one was different. When I got there, I had to be in the wrong property because the property was immaculate. Nope, that was the right one. I was puzzled. How in the world could this be in foreclosure? Maybe it was the price, but no it wasn't the price. They told us how much the note balance was and were simply trying to get someone who would buy it for the remaining note balance. So we were puzzled. And then we came to find out it was just literally bad management. The person who ran it, they just had no skills at all. They couldn't collect the rent, they couldn't get anything done correctly. So bottom line was the numbers just didn't work. As a result, they couldn't pay the mortgage.

Sometimes it's simply human error that creates the problem with the RV park. And of course the great thing about those kind of turn arounds are that's easy to fix. That's very inexpensive to fix that kind of issue. Now, do make sure in your diligence to make sure that it really is human error and not some other big or latent defect. But it's not uncommon with RV parks, particularly if you have a mom and pop that does not know what they're doing, who bought the RV park and thought it was a good idea but did not in any way attempt to learn anything about the business at all, no investment in their education whatsoever. They close on it, they show up, they self manage, and they drive the thing right into the ground. It's happened many times. I've been in an RV park that it was on an honor's system. Can you believe this? They had a box with a slot in it, and a sign that said, "We are on an honor's system. Please deposit $30 every night you stay here in this box." What in the world kind of management system is that? You think people did that? More importantly, you think that people every once in a while broke open the padlock on the box which you could do easily with a pair of bolt cutters to take out whatever cash was inside? These are all ideas that probably someone thought at the time was sheer genius, but sure isn't going to make it possible to pay the mortgage when there's no cash in the box.

Finally, environmental issues. Now environmental issues are tricky. A lot of people don't even realize what they are. But let me give you some examples we've seen over the years. We've seen such issues as a property built on a landfill. Can't do that. You can't have a property on top of a landfill. We've seen properties that have buried gas tanks. Why? Because the RV park at one time had a gas station in it as some way to sell gasoline along with food items and things, and it was never successfully removed during that big gas tank removal program they had back in the seventies. Sometimes mom and pop decided to go ahead and bury their trash onsite. Well, that created a landfill once again. Sometimes properties are right next door to other toxic sites and there's leaching of whatever the toxicity is in that site into your property, which again makes it impossible to run as an RV park.

Now, this one is easy to solve thank heavens. It's called a Phase One Environmental Report, so basically you have a certified environmental engineer go out to the property and they look it over. They took pictures. They look at maps of other underground buried toxic things to see what the radius is and how much leaching there might be. They even look at aerial photos of the property from years gone by to see how it has morphed over the years, to see if there's any sign of any environmentally unfriendly use since construction or even before. They then give you a Phase One Environmental Report that either gives you a thumbs up that it's clean, or a thumb up that it's dirty. If you fail the Phase One, you then do a Phase Two to figure out how bad the problem is, followed by a Phase Three on how to clean it. The key though is if you do these environmental reports it's like a get out of jail free card because if they later find out there's an environmental contamination and you were not told that, you can then go against the environmental engineer's insurance which will hopefully pay to clean it. Most of the time it does. Or if it's a Superfund Site at least you're off the hook. They're not going to come after you for that horrendous, crushing price to fix it. So there's another one you can fix, but has on occasion ruined the career of an unwitting RV park owner.

The bottom line is that most of the issues that ruin RV parks, they can be solved through good due diligence. And hopefully this list will get you off on the right foot for that. This is Frank Rolfe, the RV Park Mastery Podcast. Hope you enjoyed this. Talk to you again soon.