DARRELL HESS & ASSOCIATES:  Over 285 parks SOLD!  WHY?
We educate buyers and sellers so they can make an intelligent, informed decision.
After all, we are dealing with a buyers life savings and a sellers retirement.

Downpayment . . .

What Is It and How Much Do You Need?

A.    You need access to at least $100,000.  Why so much?  Because, you are actually buying 3 things:

        1.  Recreational land.        2.  A business.        3.  A home.

This 3 in 1 package requires more cash up front than if you were buying only 1 of the 3 components.

Also, you will need back-up cash for closing costs, immediate improvements (if necessary) and operating capital.  We don't want anyone to buy a park and lose their life savings, so don't give all your money to a seller for downpayment.  Be sure to keep some back.

B.  The typical downpayment amount for campground/RV park sales is 25% to 30% of the sales price.    An easy rule of thumb you can use to determine what you can afford is to take your downpayment amount and times it by 3 (30%) and then by 4 (25%).  For example, if you have $175,000 available for downpayment you could afford a park with a sales price in the $525,000 range up to $700,000.  You could NOT afford a park priced at $1 million dollars.  That would require a downpayment of $225,000 up to $300,000.

C.  Downpayment is not money you borrow from a bank.  In our 30 years of brokering campgrounds with over 280 sales we have found that banks will not loan money to buyers for their downpayment.  This is all explained in our guidebook for campground buyers entitled, "Getting Your Banker to Say 'Yes' to Your Request." For many of you, selling your home is where a majority of your downpayment money will come from.  But, be advised that campground owners are not going to take their park off the market and wait while you try to sell your home. 

D.  Other assets do count.  The equity in your various real estate holdings, stocks, bonds, and retirement accounts can be converted to cash for downpayment if and when you choose.  When you first start looking for a campground to buy, you should consider the equity in your home and other assets as part of the amount you have available for downpayment.  Prior to signing a contract, however, you will need to have begun the process of converting these other assets to cash (you won't be handing over your home, RV, or other assets to the campground owner at the closing table).

But, be aware that most RV park owners will not take their park off the market while you try to sell your home.  We often have buyers think they will enter into a contract on a campground that includes a contingency for the sale of their home.  Our experience shows that Sellers will not accept a contract with that contingency.  They don't know your area, your neighborhood, if the price you are asking is reasonable, whether you have it listed with an aggressive broker, etc.  Once they have accepted a proposal their park is basically off the market.  This is because they will have to disclose there is a contract in place with a contingency, and since most buyers don't purchase a park in their local area, buyers decide not to take time off work and incur the expense of traveling to another part of the country to see a park that already has a contract on it.  Our advice is:  either sell your home or at least have a contract for the sale of your home, or get a line of credit in place to pull out your equity before you make a proposal on an RV park.  This will greatly increase your odds of an accepted offer with the Seller. 

E.  No downpayment money  =  No opportunity:  Unfortunately for some of you, the sizeable downpayment required will eliminate the opportunity for you to purchase a campground -- even though you are sincere, hardworking, have good credit and are willing to commit all you have.  Don't give up your dream of owning your own business.  If you're committed to the idea of a campground, continue to work and save.  Otherwise, purchase a different type of business opportunity that doesn't require as much up front cash.  Consider one where you just purchase the business rather than land, a home and a business.  One example is to buy a store in a shopping center where you lease your space, rather than purchasing the real estate.  Your downpayment will be much less.

F.  What about partners, rich relatives or financial backers?  We often have buyers tell us that they have friends, relatives, or a financial backer who has agreed to put up the money.  But, in our 28 years of brokering campgrounds, there has only been one time when a rich aunt actually loaned money to the buyer.  Most of the time financial backers back out.  Therefore, we suggest you get a written commitment from your financial backer indicating he trusts you to make the final buying decision and agrees to loan (or gift) you $         at       % interest to be paid back                 how?          . If the backer has to approve your decision, he is not a backer, he's a partner, and that will limit your negotiations with a seller.

Once you have this written financial agreement, then you and the campground owner know that you have the financial capability to actually purchase the park and you can proceed with confidence and negotiate from a position of strength rather than weakness.

G.  But wait, there's more ...

1.    What about your local banker who says he will loan you money since you have great credit? 
Of course, your banker will tell you he'd like to loan you money.  That's his job.  But when he finds out you are quitting your job, selling your home and moving to another state to buy a business you have no experience in operating, watch him back away.  He'll probably tell you the bank doesn't make out of state loans.  If it's a nationwide bank, he'll tell you to work with a branch in the community where the campground is located.  This means you will have to start over with a new banker and probably work through their commercial loan department.  Most larger banks have regional commercial loan centers that cover a couple of states.  It will all be done long distance.  If this is the case, realize the banker you shake hands with will probably have little to no affect on whether or not you get the loan. 

Simply put, the bank won't loan money for downpayment, in fact this may be the first campground loan they've done.  The normal downpayment range for campgrounds is from 25% to 32% of the sales price.

2.    What about SBA (Small Business Administration)?  First of all, you need to understand that SBA is a guarantee program for the bank.  They guarantee up to 75% - 85% of the loan to the bank.  You still deal with a local bank and the local bank makes the loan.  Contrary to what you might think, the interest rate is not low -- it can go as high as 2.75% above the prime rate plus up to 3 points in origination fees.  Both SBA and the bank will require you to be financially strong and will collateralize everything (all your assets, not just the campground).  SBA is used when the bank is interested, but hesitant to make the loan.  In that case, the bank will require an SBA guarantee.  The up front costs to you will be much higher than if you deal only with the bank.  And, SBA will not loan money for your downpayment.  We've had many campground owners and buyers share their frustrations in trying to get an SBA loan.  Check out SBA for yourself at www.sbaonline.sba.gov.

3.    What about the seller taking less downpayment?  We spend a lot of time educating sellers on how to get their downpayment as low as possible because the lower the downpayment, the more buyers. So it's to the sellers' advantage to get the downpayment as low as possible.  Yet, they still need 25-32% of the sales price in order to pay off any outstanding loans, pay their costs of selling (closing costs), buy a new home, and pay their state and federal taxes, which are usually significant.  For example, one campground owners' accountant told them to expect to pay $100,000+ in taxes upon the sale of their $800,000 campground.  They're asking for $200,000 downpayment -- you can see that they won't walk away with much cash after paying all their expenses.  Obviously this will vary for each campground depending on the circumstances, but this is one of the main reasons downpayment runs in the 25-32% range.

4.    What about a lease/purchase?  Remember there are 3 parts to a campground business: the land, the business and a place to live (be it house, mobile home or apartment).  Could you lease a campground for less cash up front?  Usually not -- the sellers are always fearful you will ruin the business and let the park fall into disrepair and they will have to take it back at the end of the lease, fix everything you broke and start over again building up the business you drove off.  Less money up front doesn't excite campground owners.

5.   What about talking to banks in the area when you visit the campground?  We don't recommend buyers contact the bank until after they've seen the campground and have a signed contract.  Why?

First, this is a breach of confidentiality.  Sellers do not want the local community to know their park is for sale and this includes banking personnel.  Word travels fast in a small town and this could affect the campground owners' banking relationship if the banker knows they are trying to sell their park.

Secondly, banks are in the business of loaning money.  They will be receptive to all initial inquiries, but can't make any decision about actually making the loan until they have at least 4 key items  - your personal financial statement, the financial statements of the campground, your business plan and, most importantly, the sales contract with price, terms and mortgage amount.  The bankers can't tell you anything until they have all the facts, except that, of course, they are interested -- after all, that's the business they're in.

We've helped buyers obtain bank loans over the years we've been in this industry and have written a guide book that outlines a simple, yet highly effective, strategy for successfully getting a bank loan.  It's been our experience that it's generally not to the buyers' advantage to go to the banks until they are fully prepared with all the necessary information.

One final comment on visiting the bank before you have a signed contract -- realize that 40 or more buyers could look at a park before the right buyer comes along.  Neither the seller nor the banker want to have 40+ people coming to the bank just to ask "what if" questions. 

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