Connecting Buyers and Sellers of Campgrounds and RV Parks
Buying a Campground – FAQs
There is no right or wrong way to purchase a campground; however, if you’re tired of the corporate world or your day to day job, then this might be a viable solution,
although it will require a serious financial investment. If you don’t like risk, you might want to rethink this venture. Keep in mind that operating your own campground is more than a job. It’s a lifestyle change. You will be working longer hours and making all the decisions.
It is important that you get answers to all of your questions to make that decision.
Why don’t you advertise specific locations or campground names on your site?
These campgrounds are businesses in operation. The owners have requested the confidentiality for several reasons, but most important is that when regular guests to the campground get wind that it is for sale, they may opt to not frequent it. While this may hurt and owner’s revenue, it may also damage a potential buyer’s revenue. These types of businesses rely on the general public for revenues and we certainly don’t want to harm the current or the future revenues.
How much down payment do I need?
In most cases banks or owner financing will require 25% - 30% of the purchase in cash as down payment. This is the key factor in determining your purchasing power. You will also need a cash reserve for closing costs, any immediate repairs and operating capital. There is no point in continuing this process if the amount of cash necessary is more than you are willing to invest.
Why so much?
While commercial lending is becoming more of a challenge today, keep in mind that you are purchasing 3 parts of a business. The land, the home, and the business assets. It’s more appropriate to say that there are 2 distinct entities: the underlying land and the individual sites or spaces that comprise the facility. Although the two are joined physically, they must be analyzed separately.
Can I purchase with no money down?
Absolutely not. Also VA does not offer a zero down payment loan option on a business as they do on a residential home purchase.
What are SBA Loans?
These are guaranteed government backed loans to the bank and require a 20% - 30% down payment. It can be beneficial to deal directly with the local bank on these types of loans rather than seeking out an SBA Advisor. Interest rates can exceed 2 points above prime and you will typically get charged as much as 3 percentage points in origination fees. You will have to collateralize all of your assets. It is always prudent to investigate all types of loans in this industry.
I have a home or a business to sell, will the seller wait?
While it is always best to be cash ready to purchase, if you are not and want to enter into a contract to purchase a campground, be aware that the seller may include a kick-out clause, or require language in the contract allowing them to continue to market their business for sale, while you attempt to get cash ready. Please understand not being cash ready means you could lose the contract to purchase to another ready, willing, and able purchaser.
What is Seller/Owner Financing?
Seller financing is a loan provided by the seller of the business. Usually, the purchaser will make some sort of down payment to the seller, and then make installment payments (usually on a monthly basis) over a specified time, at an agreed-upon interest rate, until the loan is fully repaid. The seller typically chooses which security documents (mortgage, deed of trust, etc.) to best secure their interest. It is not uncommon to see a balloon payment required after a 5 year term, in this case it would be the purchaser’s responsibility to seek refinancing prior to the term expiration date.
When do I talk to the bank about the loan?
While banks will almost always tell you they are interested in loaning you money (after all, that’s what they do!) the appropriate time is when you have a fully executed purchase agreement on the campground. Remember, you agreed to keep the sale confidential and running to a bank to say you want to purchase the friendly neighborhood campground is a breach of confidentiality. You will want a definitive answer, so why not go in prepared for the YES answer? The bank will require the executed purchase agreement (which defines purchase price, terms and conditions), your personal financial statement and a 3 year tax return history on the campground and a business plan.
When do I get to see Tax Returns?
Understand that Tax Returns are the private property of the owner and we do not keep those on file. At the time the contract to purchase is executed, copies of Tax Returns for the past 3 years will be provided to you from the owner.
What is Due Diligence and when do I do it?
Due Diligence is an investigation of a business, to evaluate the overall feasibility of the purchase. You will look at physical, economic, demographic and market feasibility of the campground. This is when your opportunity to inspect the records, books, licenses, leases, permits, have a Phase 1 Environmental Study completed, 4 point inspections, etc. The time period is typically 30 – 60 days after contract effective date and loan commitment date. This is a “subject to” your approval item in the purchase contract between you and the owners. Remember, by agreeing to Confidentiality, you cannot perform any of these duties prior to the executed purchase contract.
What are Owner’s Non-Cash Benefits?
One of the benefits of living on the campground site is that typically the business pays for and provides a lot of the owner’s personal living expenses, Non-Cash Benefits. While you are not technically living for free, the IRS allows you to reimburse the business for your personal expenses, such as housing rent, homeowners insurance, utilities, cell phones, cable TV, internet, property taxes, repairs, personal groceries, car repairs, gas and insurance, personal travel and entertainment. Give us a call or simply request a copy of the “Owner’s Non-Cash Benefits” sample form. Why not, it’s free!
I want to schedule a visit to a campground, who do I call?
Call The Campground Connection @ (616) 532-4835. The owners have entrusted us to handle all aspects of the sale from the initial inquiry to the closing. We also have private contact numbers for the owners to ensure that your visit is scheduled immediately and confirmed with you immediately. So easy, leaving you with just the packing, but don’t forget the kids!
I just returned from visiting a campground and we love it! What do we do next?
Call The Campground Connection @ (616) 532-4835. We have purchase ready contracts for you to use or you can hire an attorney to provide one. In either case, give us a call and we’ll be happy to point you in the right direction. Remember, during your visit, owners are merely showing you the business, buildings and answering your questions, they are not prepared to negotiate any terms of purchase.
How quickly can I close on the sale after the contract is executed?
Typically, it will take 60 – 90 days to complete all the necessary paperwork, go through the loan process and due diligence. Seller financing can close in as little as 30 days and certainly within 60 days.
What in the world is 401(k) Small Business Financing?
This allows you to use your existing IRA or 401(k) funds to invest in a campground without taking a distribution or applying for a loan. That’s right, no penalties or distributions, it’s merely an investment in the stock of your newly formed company and does not trigger a distribution or any penalties. You still get tax deferred savings and still have complete control over your retirement’s growth. It’s easier than you think! Give us a call and we’ll point you in the right direction. (616) 532-4835.
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