Welcome back! In this episode we’re going to discuss the best ways to fund or invest in an RV park?
In Episode 43 – My Civil Engineer Rocks – you learned of 2 development opportunities that I had evaluated. When working on development projects there are a lot more costs involved. First, you have to procure the land. One of those projects cost 1.5M to secure the land only. 2nd you need solid estimates on the cost for development. That would involve working with the civil engineer and the developer to obtain the costs. This project had expected projected cost estimates upwards of $2 million dollars.
So now you’re thinking, where on Earth do you get 3.5 million dollars? And you might be thinking that I have it in my back pocket and the simple answer is no, it’s not in my back pocket but I wish it was. How awesome would it be if I found 1 real estate investor that had that kind of money and was willing to risk everything on my success? I know you’re out there; this investor is called an Angel Investor.
It’s likely that I could find an Angel Investor, but it would take a bit more hunting, so the next best answer is I’d have to raise the capital. Raising capital although it can be done, and I have friends raising capital right now for a project in Key West is a huge undertaking and you have to have several team members in place. One of those players would be an SEC Attorney that would help you setup for Syndication.
What does that mean? It just means that I would have the ability to raise capital from multiple sources. Hiring an SEC attorney is also another added expense.
For now, and for the costs listed above developing a park may not be in my near future – unless my listeners, now of an Angel Investor? …..I still know of a great development opportunity I’d be willing to partner on!
Let’s look at buying an existing park.
In the past 2 years, I have evaluated 13 parks and now I’m on my 14th.
8 of those parks I dealt directly with the seller and for different reasons they never came to fruition.
I’m going to focus now on the 2nd park I ever evaluated because this park had loads of opportunity’s that were missed by the sellers and by me too.
This opportunity was in Waycross, GA. It was 40 acres, that had a 200-person banquet hall, barn, a stage, and it was listed on the National Register of Historic Places. The sellers had owned this property for over 40 years and in it’s day it was a local attraction. The seller was getting older and due to health issues wanted to sell this property, but he didn’t want to change anything about the Historical features. I presented making this into an RV park on the undeveloped ground, hosting large events, placing some tiny homes onsite and using the barn as a wedding venue. He loved the idea, and we began negotiating. The seller wanted $425,000 and I had put together an extensive estimate for the build-out estimating another $2M in costs.
I was working with the seller to hold the paper. What does that mean?
I had already predetermined that the seller liked me and my approach, and I knew that the seller owned this property out right, meaning he didn’t not have an existing mortgage in place. And he was in position to make more money off of his investment or so I thought.
Balance is $425,000
My offer was this, I would make a down payment of $85K, leaving $340,000 on terms. My terms were 5-year note on the $340K, amortized over 30 years at 4% interest and the first payment being due 1 year from closing. I needed the 1 year to turn around the business to start producing income. This park had been shut down for a couple of years, so I needed time, which effectively 1 year wasn’t enough time, but I was up for the challenge.
What were the benefits to the seller for holding the paper?
- His investment was collateralized by the property. Meaning if I failed, he gets the property back.
- He would get 4% on his money over time. You only get 1% by putting your money in a bank or a CD. Even IRAs aren’t doing that great.
- We could close quickly as we didn’t need to wait on a bank loan for approval.
- Let’s not forget the tax benefits. If the seller had received the $425,000 in cash. At the end of the year, he would have to claim that amount and pay income taxes on it. Even at 20% that’s $85,000 in taxes. He would save in taxes by just receiving the monthly payments of $2000 or $24,000 for the year. He’d only pay taxes on the $24,000.
- One of the sellers’ concerns was his health issues, for that a Trust could be setup for future payments should something happen to him before the end of the term.
The benefits for me:
- I didn’t have to qualify going through the lengthy bank loan approval process.
- The loan didn’t have to go through underwriting.
- I could negotiate my own terms. Banks won’t do that.
- Down payments are also negotiable.
Here’s the only downside challenge I ran into. I wasn’t just negotiating with the true owner of the property. There was also a daughter that was looking after the best interests of her father. The father was all on board, but the daughter was encouraging her father to just take the money and run. At the end of the day, this encouragement ultimately won. They had decided to pass on my approach, and we parted ways.
I learned several things that day. One being, I really needed to understand their pain point better. Perhaps, there was a reason they needed the money, and I didn’t fish that out in my due diligence. If I had understood their pain point, I could have solved that problem and perhaps been in a different situation.
What made it even worse was to learn that several months almost a year later, the property did sell for their asking amount and the new owners are doing exactly what my plan was.
Was I disappointed? Sure, I was but at the end of the day, I still feel that negotiating terms with a seller is the best option for everyone, making it a win-win solution. I just needed to get better at negotiating.
Today, I’m working on a park in TN. Again, this is another Seller Financing opportunity with a twist. The twist being there is an existing mortgage in place at a small local bank. The sellers are open to seller financing, and I can see an opportunity to use the small bank. My plan is going to be to go establish a relationship with this bank. I love small town banks! I’m from a small town and it’s all about the relationship you hold with them. Smaller banks are more willing to do business with you because they “know” you. Big time banks, that I don’t like, treat me like I’m a no body. I’m just a number to them. I learned this lesson way back in the 80’s when I lived in Kansas City. I realized that my name alone was no longer good. But if I walked into my hometown bank even today, they know me, my character and are more willing to work with me.
For this park in TN, I plan to approach the sellers with seller financing and the bank may come in useful in the future for an expansion to the park.
Another way to fund a park is by using the Small Business Administration – they even have loans specifically for women in business.
Here’s another win-win opportunity for my listeners. Have you ever wanted to own an RV park, but you don’t want to do the work, but you still get interest payments monthly? (As a side note, I know of another opportunity that’s doing just this.)
Well, with every opportunity I’ve researched, most require down payments. Down payments can generally be $50k to $100K or even more
Sometimes, that down payment is more than I have in my pocket and quite frankly I’d be pretty stupid to use my own money anyway because this is an opportunity for you to earn income on money you either have laying around in a savings account (earning nothing) or in an IRA account (earning nothing).
I can’t share online what your return would look like because I’m not certified to do so, but I can guarantee your return has the potential to be much higher than you are currently receiving depending on the opportunity, of course.
Rich Dad Poor Dad teaches this very principle. I’ll leave the site in my notes.
I’m Mechiel Kopaska of the Fearless Innovator Podcast, I hope you enjoyed this episode.