original “moms & pops” who built them from scratch. Most of these owners are entering their 70’s and 80’s, and they are more focused on monthly income than they are getting a bunch of cash and buying a new house/boat/car. They simply want to be able to live out the rest of their lives with a comfortable monthly amount, and no worries.
But even more important than their state of mind is their state of finances. To be able to offer seller financing you must first own the property free and clear of any bank debt. And because they built these parks so long ago, they paid off the mortgage decades back. Even a 30-year amortization mortgage has a zero balance when you’ve owned the park since 1960.
How to find it on the front end
Many deals clearly advertise that the seller will carry the debt. Those advertisements will say “smalldown payment and seller will carry” which means there is no mystery to the debt structure – you simplyput your money down and the financing is already done for you. Other sellers will answer “yes” whenyou ask them if they will carry the paper, but do not have it clearly posted on their offering. And thereare plenty of brokers that will give you the straight scoop when you ask them about the details of thepark for sale and if the seller will finance.
One of the most important times to listen to the seller is when you ask if they will carry the paper. Ifthey answer “I don’t want to” then it means that they can potentially do it but if they answer “I can’t”then it may be that they have refinanced and already have a large mortgage that precludes seller carry.
How to sell them on the idea
Seller financing is a win/win for both the buyer and seller. How is it good for the seller? Well, first of all, if you pay the seller in cash, he has to immediately pay tax on the full amount. If, however, he carries the paper, he only pays tax on the amounts he is paid along the way, so he effectively earns interest on money that would have been lost to tax. But more importantly, the difference between the interest he will receive in conventional investments and seller carry is gigantic. If a seller puts his proceeds from the sale in a CD, he will earn around 2% today. But if you pay him 6% interest on his note, he is making three times more. Can he make 6% in any other investment vehicle today? Not hardly. Look up the returns on stocks, bonds, CDs and Treasuries and see how pathetic they are right now.
What about security of his holdings? Which do you think is a safer investment: a first lien note on an income-producing mobile home park that he knows inside and out or the credit of some random company like Enron? And I used the Enron example as many large, well-thought of companies have been failing left and right recently – and if the company fails then his investment is worth zero.
The importance of “bonding”
Many times, the difference between seller carry and all-cash hinges on how well the seller knows, likes and trusts you. That’s why there cannot be enough emphasis on “bonding” with your seller. Take the extra time to talk on the phone and/or meet with the seller and convince them what a good and hard-working person you are. Remember that sellers do not have a loan committee – they are the committee.It is imperative that you impress them with your commitment to making the deal a success, and youcan’t do that unless you spend time with them. I’m not talking about going on a vacation together, I’m talking about quality time listening to them and telling them about what your goals are. It’s the samething that you would want if you were in their shoes.
We bought more parks last year than ever before, despite a difficult banking environment. How? We received seller financing on the majority of the deals we bought. Seller carry is an essential tool in buying parks. Learn how to get it, and how to create a win/win scenario for your seller.
Written by Frank Rolfe from