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Tag: RV Park Due Diligence

  • RV Park Financial Due Diligence: 11 Financial Red Flags That Reveal the Truth Behind the Numbers

    RV Park Financial Due Diligence: 11 Financial Red Flags That Reveal the Truth Behind the Numbers

    The seller told me she gave me everything I needed.

    She sent over the T-12, the P&Ls, and the software reports. Three years of consistent income, clean and organized, and for about 48 hours the deal looked solid on paper.

    Then I asked for the occupancy reports from her reservation software.

    She said she already gave me all the income.

    I explained that I did not need the income number. I needed to know how it was earned.

    It took some back and forth to get those reports. And when they finally came through, the occupancy on the largest part of the portfolio was sitting at 65%. This is actually a healthy destination park that grew 22% last year, which makes the occupancy picture even more interesting to dig into, because strong revenue growth and 65% occupancy on your biggest asset tells two different stories depending on how you read it. One of them is very encouraging. The other one is a question worth asking.

    That is what RV park financial due diligence actually looks like. Not a checklist you run through in a weekend. A process of rebuilding the financial picture from the ground up until the numbers tell you the truth. Every red flag I am about to walk through is something I have seen show up in real deals, and every one of them has a dollar consequence that changes the model when you find it.

    Here are the 11 financial red flags I look for on every deal I underwrite, and what each one is actually telling you.

    RV park financial due diligence red flag #1: the missing management fee

    When I open a seller’s expense report and there is no management fee, my first question is simple: who is running this park for free?

    The answer is almost always the seller. And that matters enormously in RV park financial due diligence, because the seller is leaving. Whatever they were doing to keep that park operating, whether it was managing reservations, handling maintenance calls at 9pm, running the front desk, or managing seasonal staff, that labor has a cost. It just does not show up in the financials because the seller never paid themselves a market rate for it.

    When I rebuild expenses as part of underwriting, I add a management fee based on what it would actually cost to hire someone to do that job. For most parks in the $1M to $3M revenue range, that number runs somewhere between 8% and 12% of gross revenue. On a $1.2M revenue park, that is $96,000 to $144,000 of expense that the seller’s P&L is not showing you. That does not mean the deal is dead. It means your NOI just changed, and so did your cap rate, your DSCR, and your offer price.

    The flip side of this red flag is equally important in RV park financial due diligence. Sometimes the management fee is suspiciously large, with multiple family members on payroll at rates that do not reflect market compensation. A seller paying a spouse $85,000 a year to handle social media and a son $72,000 a year for maintenance on a 60-site park is not the same as a legitimate management structure. Part of the underwriting process is normalizing compensation to what the market would actually pay for those roles.

    RV park financial due diligence red flag #2: maintenance costs that disappear

    I see this regularly. The seller’s expense report shows $2,000 in maintenance for the year. On a park with 80 sites, aging pedestals, gravel roads, and a bathhouse that runs year-round.

    Two thousand dollars.

    If a park has historically run $10,000 to $15,000 a year in maintenance, and the most recent year shows $2,000, one of two things happened. Either the seller deferred everything to make the financials look better before the sale, or the maintenance line got reclassified somewhere else. Either way, the cost does not disappear after closing. It comes back, usually in the first year, usually at the worst possible time.

    This is a foundational principle of RV park financial due diligence: whatever cost you can see that will likely continue after closing, include it in your model, whether the seller agrees or not. If the trailing three years average $12,000 in maintenance, I use $12,000. The seller may push back. That is fine. My job is not to validate their best year. My job is to find the number that will likely continue so my client knows what they are actually buying.

    RV park financial due diligence red flag #3: one-time revenue dressed as recurring

    This one is subtle but expensive if you miss it.

    A seller had a strong revenue year because they sold a parcel of land adjacent to the park. Or they received an insurance payout after a storm. Or they hosted a one-time regional event that brought in $25,000 in a single weekend and will not repeat. All of that shows up in gross revenue. None of it repeats after closing.

    The RV park financial due diligence question here is simple: is this revenue durable? I ask for a breakdown by category, not just a total. Site fees, cabin rentals, store sales, laundry, events, storage, and any other line item. If a category spikes dramatically in one year with no explanation, I ask. And I do not include one-time revenue in my stabilized NOI calculation. For more on how to rebuild NOI from the ground up, read The $312,000 Mistake.

    RV park financial due diligence red flag #4: occupancy that looks strong annually but collapses by month

    This connects directly to the deal I mentioned at the top of this post.

    Annual occupancy numbers can hide a lot. A park that runs 65% annual occupancy with 95% occupancy in June, July, and August and 30% occupancy in November through February looks very different on an annual basis than it does when you model the monthly cash flow. And three years of consistent income at that occupancy level tells you the park is stable, but it does not tell you how much breathing room exists in the slow months.

    Fixed costs, debt service, insurance, property taxes, utilities, and minimum staffing do not take the winter off. They run all twelve months. Good RV park financial due diligence means asking for monthly occupancy going back at least two years, broken down by site type. Transient nightly, long term monthly, and any cabin or glamping revenue tracked separately. That monthly picture tells me where the cash flow pressure points are, what the working capital requirement looks like through the slow season, and whether the park can actually service its debt in the months when revenue is thin. For more on running this stress test, read How to Calculate Break-Even for Your RV Park.

    RV park financial due diligence red flag #5: the expense ratio that is too clean

    Well-run RV parks typically run operating expenses between 35% and 50% of gross revenue depending on size, amenity level, and staffing model. A park showing 25% expenses is not necessarily a well-run park. It may be a park where the seller has stripped out costs, deferred maintenance, and stopped replacing things that need replacing.

    When I see an expense ratio below 30% the first question in RV park financial due diligence is what is missing. Is there a management fee? Is insurance current? Are property taxes current? Is maintenance being expensed or capitalized? Is payroll realistic for the size of the operation?

    The goal is not to assume the seller is being dishonest. The goal is to find the real number, because the expenses that are missing today show up on your P&L in year one.

    RV park financial due diligence red flag #6: permits that do not match the operation

    This one has financial consequences that most buyers never think about until it is too late.

    A park operating 85 sites with permits for 70 is not generating legal revenue on 15 of those sites. Those sites are a liability, not an asset. If a compliance review or a sale triggers an inspection, the unpermitted sites may need to be shut down, brought up to code, or removed entirely. The cost of that correction can range from tens of thousands to hundreds of thousands of dollars depending on the infrastructure involved.

    Permit verification is a non-negotiable part of RV park financial due diligence. I confirm that the number of operating sites matches the permitted site count, and that health department permits for the pool, bathhouse, and any food service are current and transferable to a new owner. Permits that are issued to an individual rather than the property can sometimes lapse at sale, which creates a gap in operations and a cost to reinstate.

    RV park financial due diligence red flag #7: OTA dependency hiding in the revenue mix

    If 60% or more of a park’s bookings come through a single online travel agency, that concentration is a financial risk that needs to be priced into the deal.

    OTA platforms charge commissions of 8% to 15% of the booking value. They can change their algorithms, their fee structures, and their terms at any time. A park that is heavily dependent on one platform for its occupancy is one policy change away from a revenue problem, and that risk belongs in your RV park financial due diligence analysis before you make an offer.

    A healthy park has diversified booking channels and a growing direct booking percentage. A park that cannot tell you where its bookings come from has a data problem on top of the concentration risk.

    RV park financial due diligence red flag #8: long term tenants at below market rates with no lease end date

    Long term tenants provide revenue stability, but they can also cap your upside in ways that significantly affect valuation.

    A park with 30% of its sites occupied by long term tenants paying $350 a month when market rate is $650 a month has a gap of $300 per site per month. On 25 sites, that is $7,500 a month or $90,000 a year in unrealized revenue. If those tenants have no lease end date and have been there for years, the practical reality is that rate increases will be slow, contested, and potentially damaging to occupancy if pushed too aggressively.

    The RV park financial due diligence question here is how long it realistically takes to close that gap, because the timeline matters enormously for the return model. A value-add thesis built on bringing long term rents to market is valid if the math works over a realistic hold period. For more on how revenue mix affects your returns, read RV Park Return on Investment: 5 Dangerous Mistakes That Destroy Your Returns Before You Close.

    RV park financial due diligence red flag #9: deferred capital expenditure hiding underneath clean financials

    A park can look financially healthy on paper while sitting on $300,000 to $500,000 of deferred capital needs that will land on the new owner’s balance sheet within 24 months of closing.

    Electrical pedestals at end of life cost $3,000 to $5,000 per site to replace. Roads and pads that look acceptable in photos may need resurfacing. A septic system running at or over capacity is a regulatory and operational risk. A bathhouse built in 1987 that has never been updated is not a charming vintage feature, it is a capital event waiting to happen.

    Building a deferred capex estimate is one of the most important outputs of RV park financial due diligence. I use it to adjust the purchase price, negotiate a seller credit, or set a post-close capital reserve. A lender who does these loans every day will often require a capital reserve anyway, but I want my client to have their own number before the lender gets involved. For more on what lenders are actually looking at, read What a Lender Actually Looks at Before Approving an RV Park Loan.

    RV park financial due diligence red flag #10: property tax exposure after sale

    In some states, a property sale triggers a full reassessment at the new purchase price. If the current owner bought the park 15 years ago for $800,000 and you are buying it today for $3,200,000, your property tax bill after closing may be dramatically higher than what the seller’s financials show.

    This is not a red flag in the sense that someone is hiding something. It is a financial consequence of the acquisition that belongs in your RV park financial due diligence model before you finalize your offer. I run a property tax estimate at the new purchase price for every deal, using the local mill rate and assessment ratio, and I use that number in my expense model rather than the seller’s current tax bill.

    On a $3,200,000 acquisition in a state where property is assessed at 80% of purchase price and the mill rate is 20 mills, the annual property tax is approximately $51,200. If the seller was paying $18,000 a year based on their original purchase price, that is a $33,200 expense difference that goes straight to your NOI and DSCR calculations. That is not a small number and it is one that surprises buyers who skip this step in RV park financial due diligence.

    RV park financial due diligence red flag #11: a cap rate and exit that have never been modeled

    The last red flag in RV park financial due diligence is not something hiding in the seller’s financials. It is something missing from the buyer’s analysis.

    I am always surprised by how many buyers evaluate a deal based on whether it cash flows in year one without ever modeling the exit. What is the cap rate you are buying at, and how does it compare to where comparable parks are trading? If you are buying at an 8% cap and the market compresses to 7% over your hold period, what does that do to your exit value? If you add amenities and grow NOI by 20%, what does the property sell for at year five at a stabilized cap rate?

    Every deal I underwrite includes a 10-year cash flow model, a Year 5 and Year 10 exit analysis, an IRR calculation, and a cash-on-cash return for every year of the hold. That is not advanced financial modeling. That is the minimum a serious buyer should know before they make an offer. The cap rate you buy at is the foundation of the entire return, and the exit is where most of the equity is made or lost. If you have not modeled both before you sign, you are not doing RV park financial due diligence. You are guessing.

    For a complete acquisition underwriting framework, my book From Offer to Operation: The Complete RV Park Investor’s Guide includes a 60-point due diligence guide and is available for immediate download on Gumroad or by searching the title on Amazon.

    The bottom line on RV park financial due diligence

    The seller’s job is to show you the best possible scenario. Your job is to dig to the worst, because you do not want to be 12 months in and out of cash.

    RV park financial due diligence is not about finding reasons to kill a deal. The Florida portfolio I mentioned at the top of this post is still on the table. We are still negotiating. The occupancy number changed the model, it did not end the conversation.

    That is what this process is for. Just truth, so you can make a real decision with real numbers.

    If you want help underwriting a deal you are looking at, deal screening starts at just $99 and a full acquisition underwrite is priced depending on complexity. Reach out at PVIFinancial.com.

    Related reading:

    For the full list of RV park acquisition resources, visit my RV Park Resource Library, updated daily.

    ~Wendi | Fractional CFO | PVIFinancial.com

  • RV Park Due Diligence Checklist: 10 Critical Items That Protect You From a Costly Mistake

    RV Park Due Diligence Checklist: 10 Critical Items That Protect You From a Costly Mistake

    Every serious buyer needs an RV park due diligence checklist before they get anywhere near a closing table. Due diligence is not a formality. It is the only window in the entire transaction where you have the legal right to demand the truth, verify every number, and walk away without losing your earnest money if the facts do not support the purchase. Most buyers do not use that window well. They get emotionally attached to the deal, rush through the checklist, and find out what they missed six months after they close.

    This post gives you the RV park due diligence checklist I use when I underwrite deals for buyers, so you know exactly what to look for and why each item matters. Here is what every serious buyer needs to review before they close:

    1. Three years of profit and loss statements

    The first item on any RV park due diligence checklist is the financials, and not just one year of them. You need three full years of P&Ls so you can see trends, not just a snapshot. Revenue going up is great. Revenue that peaked two years ago and has been declining since is a very different story, and one year of numbers will not show you that.

    When you get the P&Ls, do not accept them at face value. Look at the expense ratios. Most RV parks run expenses at 35% to 50% of gross revenue. If the seller’s numbers show expenses at 25%, something is being left out. Rebuilding the NOI from the actual financials is non-negotiable, and I covered exactly why in The $312,000 Mistake: What Happens When a Buyer Accepts the Seller’s NOI Without Rebuilding It.

    2. Trailing 12 months of bank statements

    P&Ls can be manipulated, intentionally or not. Bank statements cannot. Matching the deposits in the bank statements to the revenue on the P&L is one of the most important steps in your RV park due diligence checklist and one of the most commonly skipped.

    If the revenue on the P&L does not match what hit the bank account, you have a problem. Either revenue is being overstated on the P&L, some revenue is being run through a personal account and should not be counted as business income, or there are timing issues that need to be explained. Any of these scenarios changes your valuation.

    3. Current rent roll and occupancy data

    Ask for a current rent roll showing every occupied site, the rate being charged, the length of stay, and whether the guest is short term or long term. This one document tells you more about the real health of the business than almost anything else on your RV park due diligence checklist.

    Pay close attention to the mix of short term versus long term tenants. Long term tenants at below-market rates can inflate occupancy numbers while actually suppressing revenue potential and NOI. I covered why this matters in detail in Long-Term RV Guests Are Taking Over: 5 Ways It Breaks Your Books.

    4. Utility infrastructure inspection

    This is the item most first-time buyers underestimate on their RV park due diligence checklist, and it is often the most expensive surprise after closing. Electrical pedestals, water systems, sewer lines, and septic tanks are all costly to repair or replace and none of them show up on a P&L.

    Hire a licensed electrician to inspect the pedestals and panel capacity. Get the septic system pumped and inspected. Have the water system pressure-tested. If the park is on a well, get a water quality test and a yield test. The age and condition of the utility infrastructure will tell you a lot about what you are really buying and what capital you will need in years one through three. For more on what to look for, read What to Look for in RV Park Utility Infrastructure.

    5. Permits, zoning, and licenses

    A complete RV park due diligence checklist always includes a full review of permits and zoning. You need to confirm the park is legally permitted to operate at its current size and capacity, that all required business licenses are current, and that the zoning allows for continued RV park use. Do not accept the sellers statements as fact, verify these yourself.

    This matters more than most buyers realize. If a park was expanded without permits, or if a portion of the revenue comes from structures that are not permitted, you could be buying a liability. Ask for copies of all permits, certificates of occupancy for any structures on the property, and the current zoning classification. Then verify them yourself with the county.

    6. Environmental review

    No RV park due diligence checklist is complete without at least a Phase 1 environmental assessment. This is especially important if the property has any history of fuel storage, dry cleaning, or industrial use on or near the site. Environmental contamination can make a property essentially unsellable and the cleanup costs can be enormous.

    A Phase 1 is a relatively low-cost document review and site inspection by an environmental professional. If it flags anything, you move to a Phase 2, which involves actual soil and water testing. Do not skip this step to save money on due diligence.

    7. Online reputation and booking platform analysis

    The online reputation of the park is a financial asset and your RV park due diligence checklist should treat it that way. Pull all the reviews on Google, Campendium, The Dyrt, and any OTA platforms the park uses. Look at the trends. Are reviews getting better or worse over the past 12 months? What are guests consistently complaining about?

    Also look at OTA dependency. If 60% or more of bookings come through a single platform like Hipcamp or Campspot, you are buying a business with a single point of failure in its revenue stream. A platform policy change or commission increase can materially impact your income overnight. I wrote about this in The Real Cost of Online Travel Agent OTA Dependency.

    8. Deferred maintenance assessment

    Walk every inch of the property with a contractor or property inspector and document every deferred maintenance item you find. Roads, landscaping, signage, bathhouses, laundry facilities, fencing, and any structures on the property all need to be evaluated.

    Deferred maintenance is one of the most common ways a seller artificially inflates NOI. If they have not been spending money on upkeep, expenses look lower than they really are. The RV park due diligence checklist should include a line-item estimate for bringing everything up to standard, and that cost should factor directly into your offer price or your post-close capital reserve. For more on budgeting for these costs, read RV Park Capital Expenditures: 3 Budgeting Mistakes That Wreck New Owners in Year One.

    9. Title search and survey

    A clean title search confirms there are no liens, encumbrances, easements, or ownership disputes attached to the property. A survey confirms the boundaries match what you think you are buying. Both of these are standard in any real estate transaction but they are especially important in rural properties where boundary disputes and easement issues are more common.

    Make sure your title insurance covers any issues that come up and do not waive the survey even if the seller pushes back on the cost. You need to know exactly what land you are acquiring.

    10. Seller interview and transition plan

    The last item on your RV park due diligence checklist is one that many buyers overlook entirely: a structured conversation with the seller about operations. Who are the key vendors? Are there any verbal agreements with tenants not reflected in writing? What does the seller know about the property that is not in any document? You won’t know the very important answer to this one, unless you ask.

    Ask for a transition period where the seller is available to answer questions after closing. Even 30 to 60 days of email access to the previous owner can save you from costly surprises in your first months of operation. The SCORE Small Business Association also has free resources on business acquisition transitions that are worth reviewing before you sit down with a seller.

    How to use this checklist

    The RV park due diligence checklist above is most effective when you start working through it as soon as you are under contract, not in the last week of your due diligence period. Give yourself time to actually act on what you find. If something comes up in week one, you have time to negotiate a price reduction, request a repair credit, or walk away cleanly. If it comes up in the final days, you are under pressure and that is exactly where buyers make bad decisions.

    If you want help working through the financial side of your due diligence, including rebuilding NOI, stress-testing occupancy (what happens if it suddenly drops by 20%?), and building a model that reflects what you are actually buying, that is exactly what I do. A full acquisition underwrite starts at $750 and often can be turned around in 24 hours. Reach out at PVIFinancial.com and let’s make sure you know what you are buying before you sign.

    If you want the full picture, my book From Offer to Operation: The Complete RV Park Investor’s Guide includes a comprehensive 60-item due diligence checklist that covers every category in detail, from financials and infrastructure to legal, environmental, and operational items. It is the most complete RV park due diligence checklist I know of in one place, and it is built for buyers who want to walk into every deal fully prepared.

    ~Wendi | Fractional CFO | PVIFinancial.com