No matter what kind of real estate opportunity it is, we must do a thorough job of dissecting all the moving parts prior to a purchase, just like when I was a Project Manager in IT. What do I mean by that? Hi, I’m Mechiel Kopaska the host of the Fearless Innovator Podcast, today, I’m going to share the 4 steps that we will take before purchasing an RV Park.
Granted when I was in IT, it was my role to determine the timeline, scope, and budget prior to the sale. Buying an RV Park is no different, we still need to evaluate and plan out the project.
Every park I’ve visit, I take extensive notes then go back to my desk and write up everything I learned from the walk thru and from speaking with the seller. Sometimes I’ll even record my voice so not to forget any details. This is very important to me, because those notes become a useful tool where I’m able to analyze everything I learned, and it helps me to visualize the changes that need to be made ultimately leading me to this first topic.
1). Risk analysis and due diligence. All projects require planning, and a Project Plan will help in doing risk analysis. Each risk has to be identified, mitigated, and a probability analysis. I believe that Risk Analysis and Due diligence go hand in hand.
A risk on a project could be the weather. Let’s say we’re building a park that is due to be complete in November and the park is in Florida. Well Florida’s hurricane season begins June 1 and ends November 30th. What happens if a hurricane comes through and destroys all structures? You have to plan for the worst-case scenario. In this case, I would ensure we have the proper wind and water insurance coverage. If it doesn’t happen, perfect. What’s the probability that it will happen, we may decide it has a 5 % or less chance of happening, therefore it could be a low risk to the project.
Another risk, How and when does an Angel Investor realize a return on
We would evaluate the risk tolerance of the Angel Investor and insist
on open communication and being transparent with our automated
record keeping and determine a win-win solution for all parties
involved. The probability could be 90% or greater, which means this is
a high risk. We would also evaluate how this impacts our scope, budget
and timeline and decide our mitigation plan, which may be to give
monthly or quarterly reviews to the investor.
What is the likelihood of getting all the supplies and at the budgeted
cost we estimated at the beginning of the project?
We already know this is a high risk due to the economic issues the
world is facing right now, and the probability will be high. We mitigate
the costs by increasing our contingency funds and we mitigate our
supplies by perhaps checking in with multiple vendors or ordering the
product well in advance.
We may also identify Show Stoppers! What is one or two things that
the risk is so high, you cannot move forward with the project. Mine is
Internet Wi-Fi service. Remember I’m a nerd and I love my technology
and apparently, I’m not alone. There is a significant amount of Full
Time RV’ers and those folks are working out of their RV’s, just like me.
Without exceptional Wi-Fi my project is dead.
Due diligence is also critical to evaluate. In the beginning of a
development project it is necessary to do all your homework up front
such as working with a civil engineer to determine all county, state and
federal guidelines. What if we find out that FEMA needs ingress and
egress boundaries that consume more of what we thought was
buildable ground? What if turn lanes need to be added to
accommodate for the vehicle size and shear number of RV’ers entering
our park? We need to know all of that up front to determine if the
project moves forward or if it’s a complete roadblock that can’t be
overcome and the project is halted. I know of a RV Park here in Florida
that built the park and was ready to open when the FDOT shut down
the project because they didn’t have the proper turn lanes. Can you
imagine what this has cost them?
2). Scope of work – it depends on what type of project this is, this could be a development project, or it could be a rehab project. Scope of work in its simplest form is identifying the tasks we will do and will not do for this project. For this example, let’s say it’s a new RV Park development project and we already know that I’m not fond of Pickleball (unless someone can convince me!) – so we won’t be doing a pickleball court, but we will be adding a swimming pool.
The Scope of Work on a development project is much more extensive in the number of tasks in the project plan that need to be done and the amount of money it will take to complete a project like this. In my years of IT Project Management, we went through different phases to identify and manage the Scope of Work.
First phase being Design – we will need to work with a Civil Engineer or Design Architect to design the RV park layout (often referred to as a Site Plan) and cross referencing that with a Survey. Once the design is complete and we’ve passed all the county, state and federal regulations and we received all signoff’s required to begin work, we now enter the build phase.
Build Phase – This is at the point you see the large heavy equipment coming in to clear out trees, bring in more soil to bring elevations up to code and the exterior boundaries being identified. Build is also when roadways are determined, and you can begin to see the RV lots easily identifiable due to the concrete pads, electric, water and septic being plumbed in. Build phase is complete when the Certificate of Occupancy is signed off on or the park is ready for its first customer. Let’s also assume that the operational side of things, like your website, accounting needs and your Property Management System (PMS) is up and running near the same time the build was complete.
Now we enter the Test Phase – let’s also assume that before any visitors arrive that every RV Site has passed the initial sniff testing on electric, water, and septic system and this goes for any structures being built like laundry facilities or showers. Once that’s complete, bring on the visitors. If we’ve done a great job, we should get minimal complaints about the utilities and probably more complaints about the systems. As time goes by, we will learn from our mistakes and adjust accordingly.
The scope of work is now complete. We know what we’re doing from the concept to test phase.
3). Estimate budgets with contingency – Once the scope of work has been determined, we’ll need to determine cost estimates to start and complete the project we may even include future projections for the investors. Contingency funds are almost as important as the bids we will get from the vendors. Contingency funds are set aside for the moments we may not have evaluated our risks well enough or the rapid pace supply costs are rising these days. We all know that supply costs are relatively high, so we will go plan ahead and put contingency funds in our budget.
4). What’s my exit strategy or timeline for ownership? We discussed Exit Strategy Disasters in Episode 46 and I won’t fall victim to my own advice. We will know at the beginning of the project or ownership what the plan is and the timeframe it needs to be done. With a development project the timeline to exit or sell could be 7-10 years if it’s a rehab project we might realize our gains in a shorter time from of 3-5 years.
As a recap, we’ve now discussed 4 critical steps to consider before purchasing an RV park. As a side note, this list is not inclusive of all tasks that need to be done, but it should give you a good idea of the amount of work necessary to develop an RV Park.
I’m Mechiel Kopaska of the Fearless Innovator Podcast, I hope you enjoyed this episode.