What are typical mistakes when you buy a mobile home park with the seller financing? What should I include and not include in the contract? What kind of lawyer to hire? Should the layer be regular RE lawyer or MHP specialty lawyer? Any information would be helpful.
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I’d say typical mistakes are not asking for what you want. Definitely try to get as long of a term as possible with no balloon, an interest rate that is equal to or better than market rates for the amount, as little as a down payment as possible, and no recourse/no personal guaranty, no performance clause, etc. Negotiate from there. Add a section to the purchase agreement that states the Seller Finance terms (30yr amortization, 5%, no prepay penalty, x% down, non recourse… let the seller counter and if he does then consider involving an attorney… but you don’t necessarily need one for this negotiation. Any RE attorney should be fine.
Thank you very much for the detailed response.
What is “no performance clause”?
Sometimes the seller/bank will require that you maintain x% occupancy, or $x in revenue. This ensures that you aren’t failing at running the park/business.
#1 problem with seller financing the purchase price of a park to a buyer is that the buyer may be lured into agreeing to too high a price.
This is a trap.
Come some years down the road unless you’ve done serious value add your attempts to REFI out the seller will find you have not created enough appreciation to cover the too high purchase price (balance). This trap is high risk if yoiu agree to a short balloon where it may be impossible to REFI without bringing serious cash to closing.
Now, it can turn into a strategy at balloon time and no bank will finance you, to force the seller to take a hair cut on the balance due or to extend…
I would go over this scenario with the seller, do the math right in front of him and work out a selling price that does show it should REFI out at some point in the future. I would use 70% LTV REFI terms as well not assume optimistic 80% in your model.
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