Lessons Learned From Failed RV Parks

that you did a bad job that have your R V park foreclosed on after you buy it. So let's just 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, worst case, and realistic case, because we don't all hit all of our targets.

So you want to make sure in the 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, and 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 gonna succeed because unless you're enormously lucky, none of those numbers are gonna work out for you. Next, bad location. Now, real estate is all about location, right? Location, location, location. And some people lose sight of that and they think that RV parks for some reason

are not reliant on a location when clearly that's completely wrong. Sometimes I'll buy an RV park that seems inexpensive And they'll try and 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 different 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 there 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 you can solve location. So location, if it's bad,

Pretty much you shouldn't be buying that RV park. No way that's gonna 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. And the problem is some buyers of RV parks Don't do any due diligence on those utilities, and they actually have no capital to fix them when they go out.

So what happens is they can't supply the most basic of necessities. And 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. And if you find out that they're not, Yes, you can mitigate it, but you're gonna have to budget accordingly. You're gonna have to drop the price enough to put the capital in to fix them. And you also have to make sure during due diligence that you can fix them. And 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're 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's working out. So there's many ways you can be a terrible manager and all those methods

end up in a crisis and a disaster. We once bought a property in foreclosure. It was the oddest thing. Normally when you buy a property in foreclosure There's nothing 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 we're 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 they couldn't collect the rent. They couldn't get anything done correctly. So the bottom line was the numbers just didn't work and as a result they couldn't pay the mortgage. Sometimes it's simply human error that creates the problem with the R V park. And of course the great thing about those kind of turnarounds are

You know, 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 R V parks, particularly if you have a mom and pop who does not know what they're doing.

We bought the RV park'cause they 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 was on an honor system. Can you believe this? They had a box with a slot in it.

and a sign that said, We are on an honor system. Please deposit thirty dollars every night you stay here in this box. What in the what kind of management system is that? You think people did that? More importantly, do 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 or 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 on site. 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 on that side into your property, which again makes it impossible to run as an RV park. Now this one's easy to solve. Thank heavens. It's called a phase one environmental report. So basically you have a certified engineer, environmental engineer go out to the property.

And they look it over, they take 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's morphed over the years to see if there was any sign of any environmentally unfriendly use. Since construction or or even before.

They then give you a phase one environmental report that either gives you a thumb 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 try and 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 super fund side, 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 that 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 Roth, the RV Park Mastery Podcast. Hope you enjoyed this. Talk to you again soon.