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Financial Consultants Rayne LA

The Seller Finance trap begins with a seller who is having trouble finding a buyer. Maybe the park’s vacancy is too high, maybe the location is too rural or in obvious decline. Whatever the cause, the seller can either sit on the park for an eternity, or find a creative way to attract a buyer. And what can be more attractive to a buyer than an easy to qualify, below market interest rate loan.

Robert Morella
Apex Capital Management
(337) 984-7010
701 Robley Dr., Ste. 200
Lafayette, LA
Expertises
Retirement Plan Investment Advice, Ongoing Investment Management, Tax Planning, Estate & Generational Planning Issues, Hourly Financial Planning Services, Advising Entrepreneurs
Certifications
NAPFA Registered Financial Advisor, CPA/PFS

Mr. David J. Romagosa Sr., CFP®
(337) 233-6066
213 N College Rd
Lafayette, LA
Firm
Cornerstone Financial Group In

Data Provided by:
Mr. Stephen R. Moore Jr., CFP®
(337) 232-4141
PO Box 51901
Lafayette, LA
Firm
KCSC Financial Services, LLC
Areas of Specialization
Accounting, Asset Allocation, Business Succession Planning, Charitable Giving, Comprehensive Financial Planning, Debt Management, Divorce Issues

Data Provided by:
Mr. Frank J Domino Jr., CFP®
(337) 289-5900
1220 Camellia Blvd.
Lafayette, LA
Firm
Morgan Keegan & Company, Inc.

Data Provided by:
Mrs. Nanette Soileau Heggie, CFP®
(337) 889-0250
140B Rue Beauregard
Lafayette, LA
Firm
Investment Partners of Acadiana/ Raymond James
Areas of Specialization
Retirement Income Management
Key Considerations
Average Net Worth: $500,001 - $1,000,000

Average Income: $100,001 - $250,000



Data Provided by:
Jerry Broussard
Broussard Financial Group, LLC
(337) 643-8319
106 West Veterans Memorial
Kaplan, LA
Expertises
Retirement Plan Investment Advice, Helping Clients Identify & Achieve Goals, Ongoing Investment Management
Certifications
NAPFA Registered Financial Advisor, CFP®

Mr. John N. Gherardi, CFP®
(337) 266-6015
1021 E Saint Mary Blvd
Lafayette, LA
Firm
UBS Financial Services Inc.
Areas of Specialization
Asset Allocation, Business Succession Planning, Comprehensive Financial Planning, Education Planning, Estate Planning, Insurance Planning, Investment Management

Data Provided by:
Mr. Michael E. Pharr, CFP®
(337) 232-1141
PO Box 53007
Lafayette, LA
Firm
Summit Financial
Areas of Specialization
Asset Allocation, Business Succession Planning, Comprehensive Financial Planning, Divorce Issues, Education Planning, Employee and Employer Plan Benefits, Estate Planning

Data Provided by:
Mr. Henry L Mayer Iii, CFP®
(337) 289-5830
1220 Camellia Blvd
Lafayette, LA
Firm
Raymond James & Associates, Inc.
Areas of Specialization
Wealth Management
Key Considerations
Average Net Worth: $1,000,001 - $5,000,000

Average Income: $500,001 - $1,000,000

Profession: Medical/Dental Professionals

Data Provided by:
Mr. James H. Dupuis, CFP®
(337) 232-3637
100 Petroleum Dr
Lafayette, LA
Firm
Wright Moore Dehart Dupuis & H

Data Provided by:
Data Provided by:

Beware of the Seller Finance Trap

BEWARE OF THE SELLER FINANCE TRAP
Sat 08/15/09 08:48:07 pm
by Frank Rolfe

There are few things more attractive about the mobile home park business than seller financing. Non-recourse seller financing allows the buyer to escape the hassle and scrutiny of bank lending, while at the same time offering some degree of insurance against fraud (you have not yet paid the seller in full), the ability to give the park back and walk clean in the event of catastrophe, and often includes a below-market interest rate and longer loan term.  

That being said, there is a trap often used by sellers that is baited with seller financing, and it is important to always be aware of, and stay clear of, this danger. 

The trap begins with a seller who is having trouble finding a buyer. Maybe the park’s vacancy is too high, maybe the location is too rural or in obvious decline. Whatever the cause, the seller can either sit on the park for an eternity, or find a creative way to attract a buyer. And what can be more attractive to a buyer than an easy to qualify, below market interest rate loan. 

Of course, there’s nothing wrong with a below-interest rate seller note. But not when it is used as a trap. And many times, that’s exactly what is being set. 

You see, the seller knows that the park will never hold up to the scrutiny of a bank – the appraisal, the independent review of the numbers, even the negative logic of the loan officer. To keep you from finding out that the park is overpriced, Do the Search or in a bad neighborhood, or basically completely unable to be financed, the seller offers to carry the loan and cuts the bank out of the loop day one. That’s the first leg of the trap.

The second part of the trap is to bait the deal with a super low interest rate to make the park look like it is a profitable investment, even though it could never carry a regular bank debt load of the same size. If a park is a 4% cap, then what better way to disguise the poor performance than with a 2% interest rate on the mortgage? The seller is effectively cooking the books with the buyer’s blessing. When you accept a cash-on-cash return that is spiked by ridiculously low interest rates, then you may be getting into trouble.

The final part of the seller trap is to offer only a short loan term, maybe two to five years, and the below-market interest rate for only the first year or so. What this does is to put the buyer in a negative cash- flow situation almost immediately, and force the round of bank loan requests that normally end in nothing but rejection. Faced with the loan coming due, and no bank loan prospects, the buyer often gives the park back to the seller, less his 20% down payment. There are sellers out there who have sold the same park two or three times under this framework, garnering 60% of their purchase price in down payments, and still owning the park. 

So how do you avoid ...

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