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Dirty Hands Are A Sign of Clean Money

When considering the purchase of a distressed RV park, there are several critical factors that prospective buyers must carefully evaluate to ensure a successful investment. From understanding market conditions to assessing property infrastructure and legal considerations, thorough due diligence is essential.

AOS has been helping investors with value-added properties for over 20 years. This blog post exposes the good, bad, and ugly. It explores five key factors that individuals should consider before buying a distressed RV park, providing insights and guidelines to navigate this complex decision-making process effectively.

Market Conditions and Demand Drivers

The first thing we ask ourselves is, “What happened?” How did the park get this way and what led to its demise?

The answers are more complex than one might think.

Often, we find owners are just tired. They have run their parks for decades, always assuming their kids would take over, and the kids had other plans.

The other telltale sign is a lack of cash flow to address deferred maintenance issues. A run-down park means depressed rates and sketchy guests.

This cash flow problem may or may not have an easy answer. If cash flow is hurting due to a lack of marketing or modern technology, a good management team can get a park turned around. If cash flow is depressed due to a bad location or lack of demand drivers, these are issues that can only be addressed with hefty investments that will reassert the park as a destination.

Finding the Trouble Spots

At AOS, we are involved in dozens of due diligence reports and acquisitions each year. Once we are engaged, we get to the site. The first crucial step before purchasing a distressed RV park is to conduct a thorough physical inspection of the property. Look for any structural damage, maintenance issues, or safety concerns that may impact the value and functionality of the park.

Evaluate the condition of amenities and facilities within the RV park, such as bathrooms, laundry rooms, recreational areas, and hook-up sites. Ensuring that these facilities are well-maintained is essential for attracting and retaining guests.

Get professionals to come inspect the septic tanks and system, make sure the electricity is sized properly, and the water is potable. Just because the park is currently operating does not mean all is well with the systems.

Financial Records

If anyone has tried to get accurate P&Ls from distressed park owners, they know the struggle is real. Even if you can get somewhat legible books, the devil can be in the details.

At AOS we can look at a set of books and almost immediately get a sense of what is missing and what has been added. Payroll is almost always too low due to the owners being the operators or they were trading sites for rent off the books.

Most sellers are transparent with us and tell us if they are taking cash off the books. Often laundry money, store income, or snack bar sales are under reported. It takes an expert to determine the real numbers a buyer can realize. Delve into the historical financial performance of the RV park to get a clear picture of its profitability and cash flow. Look at metrics like revenue growth, occupancy rates, expenses, and profit margins to assess the park’s financial stability.

Don’t Count Your Sites Before They Are Verified

One item that can blow an offering memorandum to smithereens is unverified site counts. Proper due diligence includes verifying that the number of usable sites matches the OM or the occupancy report. Being off just a few sites can make a big difference in overall revenue. We are aware of a nightmare scenario where a buyer ended up with almost eighty sites that were installed, but never permitted. Now, they sit empty until the county agrees to their use. One of our clients passed on a park in a stunning location as the seller had installed an entire septic system with no permit. Red flags like these can kill the deal early in the process. At AOS we often tell clients, “Sometimes our job is to get you to walk away.”

Plan for and Spend the Cap Ex Needed to Improve the Park

Assuming the above boxes are all checked, and the decision has been made to purchase the distressed asset, you now embark on the real work. You must execute the capital improvements to make this park a safe, attractive, and lucrative part of your portfolio. We see buyers fail if they have not set aside the funds to make the changes needed in their purchase.

No renovation project is complete without a timeline and budget. Map out a realistic schedule for completing renovations, taking into account factors like weather and contractor availability. And of course, keep a close eye on your budget to ensure you don’t overspend. Let’s be real, no one wants to be stuck with a half-renovated RV park and an empty wallet.

In conclusion, by meticulously examining market trends, financial viability, property conditions, legal aspects, and potential returns, investors can make informed decisions when purchasing a distressed RV park. Armed with a comprehensive renovation plan, buyers can transform a struggling property into a profitable venture. By taking these key factors into account, individuals can navigate the challenges of buying a distressed RV park with confidence and set themselves up for success in the outdoor hospitality industry. If you feel in over your head, the helpful staff at AOS is happy to guide you through these waters to safety and revenue on the other side.

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