How To Think Like A Banker

Why? Because that will give you greater security, greater liquidity, and greater chance for success. So how does a banker look at an RV park loan or RV park investment? Well, there's four things that bankers do that I think you should know about and that you should also adopt. Number one, the concept of safety. Now, there's an old saying that before you can have return on principle, there has to be return of principle.

What does that mean? Well, it means that basically if someone wants to say, hey, I made an 8% return on this loan, you only made that at the end of the movie when you got the loan back. Then you made your eight percent return. However, until you get the principal back, you have nothing. And don't forget that a bank doesn't share in any of your concepts of success.

All the bank is going to get, no matter what happens with your RV park, is they're going to get their principal back plus some interest. They don't get any upside. If you buy the Darvey Park and you sell it for a million dollars twenty years from now They don't get any percent of the million dollars, so what do they really have? They just get that small amount of interest. And right now it's the smallest it's ever been in American history.

Interest rates are the lowest they've ever been. So basically a bank is only going to want to make a loan in an RV park when it feels a hundred percent certain it will get its principal back. Now how do you do that? How do you know you can get your principal back? Well, you only buy RV parks that you have vetted through due diligence and that you know with very good certainty that everything will work out like you planned.

And on top of that, you want to think like a bank, you want to have a plan B and a plan C. What does that mean? It means if things don't work as you planned, you can't just give up. You can't tell the bank, oh well, you know, I thought I was be able to increase the occupancy by twenty percent, but I failed. No. You have to say I didn't hit it yet, but here's my plan B to do it. Here's my plan C to do it. You have to be resilient.

So safety is a key item. Anytime you're looking at buying an RV park, you have to believe In your heart of hearts, with 100% certainty that you are going to be succeed at that, and that you are going to get your down payment back and interest and a profit. Do not get involved in risky stuff.

Not a good idea. Benjamin Franklin once said that due diligence is a mother of good luck. He never owned an RV, but he would have been an excellent RV park owner and an excellent banker, because that's exactly correct. You make your own luck. When you check out all the angles

So that you know that the revenues are accurate and the costs are accurate, that the permits are valid and every other item falls right into place, then and only then do you have safety and you never want to get involved in a deal unless you have that form of safety.

Item number two the bankers do bankers are always concerned about quality. So what does that mean? It means with an R V park they want to have something that they consider to be investment grade. They don't want just a raw field, a big dirty field that some RVs pull in with a little power source per lot, no real defined roads, infrastructure amenities. They don't want that. There's no quality in that. They've learned from experience that quality assets are much safer than non quality assets.

So therefore the question is what makes an RV park have quality? Well, I think we all know the answer to that. You can drive into any RV park right now and you can tell me just as you pull in in three seconds this is a quality product or this is not a quality product. The quality can be based on many items. The location obviously is big, but so is the infrastructure. Just the way the property is presented, its marketing, its signage, the drive up appeal. All these various items mean quality.

The bankers in tough times, like right now during the COVID nineteen pandemic, what do bankers do? Bankers do what's called a flight to quality. That means they favor loans that are based on quality properties, and the ones that are not quality fall into disfavor. They don't want to make those loans anymore. So that's why quality is key. When you're looking at an RV park, if it has quality, it will always give you the ability to sell it.

Or to get a loan on it, it will always attract new customers. It will always retain old customers, it will always have good word of mouth. But if it's a low quality product If it doesn't have a great location and doesn't have very good amenities and doesn't have very good infrastructure, then it's not typically going to succeed. Now, it might succeed in good times.

But it won't succeed in bad times. And that's what bankers are always worried about, not the good times, not like things were in America pre March, pre COVID nineteen. They're more interested in what happens after you have recessions and depression. Now of course COVID nineteen has not really impacted RV parks at all for the negative. In fact, some would say it's it's done a lot of great things for RV parks.

Some people say that bankers live for the weekend. Well there's nothing wrong with that. Maybe they do live for the weekend. But one thing they like to do is they like to stay stress free. All successful RV park owners should always strive to stay stress free. So how do you think like a banker in this regard? Well give yourself plenty of time.

And if you're looking to buy an RV park and you ask the bank, how long would it take to get a loan on this RV park? and they say, Well, I think I could get one in forty five days, then put sixty in the contract, maybe even more than that. And that doesn't matter whether you're buying one new or doing a refinance. Don't box yourself into a corner. You want to make sure that at all times

At all places, you are never under an extreme amount of stress. There's nothing good in stress. There's no money in having stress. And bad things happen when you get stressed. If you're trying to get a loan and you're under stress, you've got to close on a certain day and the banker says, Well, we want to change the terms or we want to do this or do that, you have no room to negotiate if you didn't give yourself plenty of time. What are you going to do?

Nothing. You have no time to maneuver. You have no way to pivot. What if, for example, you want to get your RV Park refinanced? And you can't get a a loan that you find acceptable on the refinance. Well, if you give yourself plenty of time, you can go out there and sell the R V park to somebody else before the note comes due. Always give yourself plenty of time. I'm not talking about losing your sense of urgency.

You don't want to lose your urgency. That's what allows you to be competitive. That allows you to get there on a Friday with the contract because you don't want to wait till Monday because someone might steal that RV part from you. But it means give yourself plenty of cushion, give yourself plenty of leeway, because time moves quickly. And right now, during these COVID nineteen times, it's very hard to get things done properly. So give yourself plenty of room.

Finally, bankers always have no hesitation in canceling the deal. Now you as the buyer you'll be all excited about that RV park and sometimes you will blindly go where you shouldn't. You'll find things out in due diligence and you'll say, ooh, well, you know, I'm gonna buy it anyway, because I already told everyone I was, and maybe it will all work out in the end. Well, bankers aren't like that.

Bankers will just literally pull the plug two seconds before closing if they get cold feet. Now they may not cancel the deal. They may say, well, we want to we want to reconsider this. We want to go back before the committee again. Right? You need to adopt that same kind of idea. When you're by that R V park and you're doing all that due diligence and you're gathering that gut instinct of what's good and what's not. If your gut instinct tells you don't buy it, be like a banker. Say whoa.

Something's wrong here. I'm not feeling good about this anymore. I'm not excited about this anymore. I don't think I want to buy this anymore. Be like a bank. I know it sounds cold, it sounds cruel. The broker will be calling you up, When are we closing on the R V park? So will the seller.

However, you have to let those people understand that they are not the one who's sticking their neck out. They have no skin in the game at all. Five minutes after closing, the broker gets his money, the seller gets their money. They don't care what happens to you.

So you've got to but look after yourself. And that's what banks do. Banks, even though they may say, Yeah, we'll do the loan on that R V park and oh it'll be great and all this different stuff and yeah, we're gonna close on this date, if anything pops up in the interim, whether it's a bad appraisal Some other bit of bad news, something that makes them doubt whether you even know what you're doing, they will think nothing about shutting it down.

That's just the way they operate. Why do they do that? Because again, they have no way to profit from your deal except getting their money back in a small amount of interest. They don't like to gamble. They don't see the upside like you see the upside. You may say, well, it's a little bit risky, but hey, I got a plan. Well, they don't have a plan.

All risk means to them is if if that loan goes bad, then they blew it because the amount of money they lose off the money they loan you could wipe out all the profits from a huge number of loans for who knows how long. So again, don't buy it if you're not happy.

I and Dave have both bought properties in the past in our early days that we were not excited about. We did not have a positive gut instinct, yet we closed on them anyway because everyone was pressing us, the broker, the seller, even the banker. But we didn't feel good about it. And every time we closed one, I closed one like that, and Dave closed one like that in our early careers, blew up in our face. We should not have done that.

Be like the banker. Be ready to coldly push the button, the eject button, at any moment up to the very moment you sign the closing documents. If you do not feel good, if there's new information that has been interjected in the interim, you stop that thing, you hit the brake.

You say, I'm going to think about this. I don't know if I'm going to go forward or not. And then here are the things I need to make that decision. Make a little list. But you have to approach it scientifically. Do not get emotionally involved. Good banks never get emotionally involved. They may like you as a borrower. They may like to be friendly. But at the end of the day, they're not going to do anything dumb, dumb for the bank. Not going to happen.

So you have to always do the same. Wear that white lab coat. Do not do anything that scientifically is wrong, wrong for you as an investor to do. Bottom line in all of this, think like a banker. It's one of the best approaches you can have as a successful RV park investor. This is Frank Roth with the RV Park Mastery Podcast. Hope you enjoyed this. Talk to you again soon.