One of the best ways to ensure you get the best price on your RV park when you sell it, is to keep great accounting records of everything you do in the park. I’m Mechiel Kopaska and this is the Fearless Innovator Podcast and today we’re going to discuss several things you can do as an RV park owner to ensure you get top dollar and we will talk about the things you shouldn’t do.
I believe that as an RV park owner when you get into a deal you also need to plan for your exit strategy. If you have no end game, you have no goal to make it to the finish line.
I also believe that many owners think that when they start their journey, they enjoy the ownership and managing and the money that comes along with it. However, they now realize that they are now 70 years old and possibly struggling with health issues and need to get out, but they had no plan on how to exit.
RV parks can actually pay you twice if you think about it. You get monthly cash flow and hopefully, if you’ve managed the property well for several years, you can now sell it for high gains.
I’m going to share with you several life examples of owners that didn’t have an end goal in mind and how I believe that hurts them. I hope by sharing this information with you that it’s helpful in making your exit strategies less painful.
Let’s talk about the project I went to in GA. This gentleman, for the most part did everything right, the property was listed at a fair value, his record keeping was in line for the operational years, although it was mostly done on paper it was still recorded, the park was in great condition and in a position to be rehabbed and updated. The issue here was his health issues resulted in shutting down the park, in other words perhaps he should have considered his exit a bit earlier because he wasn’t able to run the park for the last two years, making this property more difficult to sell with no accounting records. Accounting records are very important especially if you want to use a bank for financing. The bank will make you get an appraisal, and that appraisal will consider the lack of income as a negative on the report therefore reducing the property in value. The only option for financing here is, pay in cash, use an investor, or use seller financing. We already know that you learned in Episode 45 – The Best Ways to Fund an RV Park that this seller was encouraged by his daughter to just take the cash and run. This seller did sell his park, but it took him 1 year + to do so.
I evaluated another park in Tennessee. This park is located near the Dragon’s Tail. The Dragon’s Tail is a bikers dream road, it’s 11 miles of nothing but 318 hair pin turns! I’ve done the tail twice and by the time I made it to the top, I was dizzy but what a thrill! This park obviously is a draw for bikers and fast car enthusiasts. I was drawn to this park obviously because I can relate to the biking, but it has room for improvements, upgrades and the possibility of expansion acres and I’m very familiar with this area. It is owned by an older couple. It was listed for $1.1M.
After reviewing the financial data that was supplied, I learned that the sellers in 2018 decided to lease the property, well that lease did not go as expected and they had to take the property back and to make matters worse in 2020 their Campstore burned to the ground and fast forward now the sellers have health issues. For the last 3 years there is no financial data to review. In hindsight, these owners would have been better offer to sell the year they decided to lease the property while they still had financial data.
Why is the financial data important? Its important because your gross income can be used to calculate what the property might sell for or at least it can give you a range of it’s worth.
After my evaluation, I determined what I was willing to pay, but since they had already turned down a much higher offer, I didn’t feel they would entertain my offer. I also didn’t want to spend $1,000 to travel there if I couldn’t get an accepted Letter of Intent first.
You may be thinking, why didn’t you get an appraisal? I believe appraisals are more relevant in the residential market than they are here. An appraisal in its simplest form is a person doing an educated guess based on costs and recent sales within the area. This park was unique and there was no data from the surrounding area to compare it too, besides the only time an appraisal in necessary is when a bank is involved. I won’t be using bank money for my RV Park purchase.
Why did these owners stay in the game? If I had to guess, they really enjoyed what they were doing and just got caught up in the game. They enjoyed the income they were making and let’s face it, sometimes we just feel like we’re all invincible and age and health issues won’t catch us!
This property was a development project sitting on 21 acres and listed at $1.5M. In other words, this was 21 acres of vacant land with one structure on it, but the RV park would need to be developed. The property itself is well groomed and well taken care of. It seems to be ideal for an RV park. The seller operates a cash business and according to the seller he does well however none of it is recorded. Here lies the problem. Because the seller and I got along very well, respected each other, I did dig in under the sheets on this one.
Why did I do that? It’s simple, I felt, and I still feel there is an opportunity here.
What did I do? I went to the county and presented my future use of the property and got a soft approval to move forward. I went to my civil engineer that I told you about in Episode 43 – My Civil Engineer Rocks and he validated that because this was in a 100-year flood plain that FEMA would be involved at a much higher cost, and we could potentially lose 1/3 of the property for flood elevations which equates to only 15 acres that are buildable. If we only have 15 acres, we can no longer get 85 sites on site, we could only get income off of 50 sites and when we compare the income to just the vacant land cost of $1.5M, it’s not doable for MY exit strategy of 5 to 7 years and because this is technically not a business. I have no financial data to move forward. Something has to give. In this case, it’s the cost of the land.
I believe what this seller is doing is seeing the potential future value after the park has been built and up and running for 3-5 years. Yes, it will be worth much more than his $1.5M. The potential is there, for sure! However, today it’s vacant land. I certainly don’t fault him for seeing his vision. I can see it too but not at that price. The numbers don’t lie. anything X 0 = will always be 0.
This property has been on the market for some time and the seller isn’t in a hurry to sell, but I am hopeful that at the end of the day he finds his win-win solution.
This next one is a doosie! This next 5-acre parcel is owned by a couple, it sits on a nice lake, with 3 boat slips, a marina that sells fuel, Campstore, 16 RV Spots, 6 cottages, 3 park models, they hold fishing tournaments. The place is immaculate and well taken care of but after it was built spending over $1.5 Million dollars the sellers discovered that they were not good managers. So here’s a guy that could create the vision by hand but can’t implement. Now, I’m not faulting them for their vision but here lies the issue – they have no business income and no financial data, and they want over $2.5 million. In other words, they got so wrapped up in their vision that once it was built, they didn’t know what to do with it – they had no exit strategy.
Remember that RV parks pay twice and, in this order, monthly cash flow and equity when you sell it. It doesn’t happen any other way.
Here’s a valid case of “If we build it, they will come!” Open the flood gates – the RV’ers and fishermen are ready to come but there’s nowhere to go!
Their exit strategy now, they just want to sell. But once again, there is no business so a bank won’t lend a person money on it, so unfortunate for them the people that could afford to buy this would be someone with cash or a bunch of investors go in together to purchase it.
The point to this whole episode is make sure you know why, how, and when you want to exit the game. Exit the game on top, consider your age, and the possibility of health issues in the future and if you know you can build it, but you don’t have the people skills or technology skills to manage a property, find that solution before you end up in a bind.
And for God’s sake always track your income and expenses – you need great record keeping for a fair selling price and it will save you time during the negotiation process.
I’m Mechiel Kopaska of the Fearless Innovator Podcast, I hope you enjoyed this episode. Catch me later!
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