One of the great advantages of buying mobile home parks is the ready supply of seller financing. No other form of real estate investment offers as much seller carry, and at as favorable terms — with most of these loans being non-recourse and at below-market interest rates.
How I Bought, Rehabbed, Rented, Refinanced, and Repeated for 14 Rental Properties
This is the dream right? Going from zero to 10+ rental properties, providing stable cash flow and long-term wealth for you and your family, and building a scalable business model to boot! Learn how this investor did just that, in this exclusive story featured on BiggerPockets!
So how do you get a seller to finance the mobile home park?
One of the first strategies is to “bond” with the seller. A seller will not offer financing if he is not comfortable with the buyer and their ability to make a success of the park. If they are not feeling good about the buyer, then how can they lock up their investment and their future with them? Clearly, before there can be seller financing, there has to be a period in which the seller gets to know the buyer and develops confidence in their abilities.
This is called “bonding”. To bond with the seller, you have to spend quality time with them. Meet with them and talk about mutual goals and strategies, or maybe take them to lunch or dinner. If done properly, the seller comes away from the meeting with not only the desire to work with the buyer, but also, many times, to “help them”. “Helping them” may include a lower down-payment, or more attractive loan terms — sometimes even a reduced price!
How Seller Financing Will Benefit the Seller
After you have bonded with the seller, you need to learn how seller financing is a win/win solution for the seller — because it really is. Here’s why. If the seller takes all cash for the deal, he will pay income tax and then receive maybe 2% in interest on the money. If he carries the paper, he receives better tax treatment [ask your CPA]and gets 6% interest — fully three times more in income. I have had sellers who did not realize this benefit until the end of the deal, and then suddenly offer to carry the paper. The only times a seller is worse off carrying paper is if the buyer does a lousy job of running the park and drives it into the ground. You must let the seller know that you are not that person.
Finally, you have to ask for it. Many sellers have the ability to carry financing, but the buyer is too afraid to ask for it, because they think it makes them look like they are poorly capitalized. You have to understand that you are actually doing the seller a favor by pointing out this great way to effectively double or triple their income. Offering this is nothing to be ashamed of. Most of the biggest names in the mobile home park business pitch sellers on the benefits of carrying paper constantly.
There is nothing better than getting the seller to carry a 90% mortgage, non-recourse, for 25 years. And you can do that too, if you only follow these tips.
Photo Credit: Martin Pettitt