Should I ever be suspicious of an owner offering Seller Financing?

Hi there,

Is there ever a reason to be suspicious of an owner wanting to do seller financing?

It looks like the benefits to me of seller financing are 1) no personal recourse 2) Below-market interest rates and 3) (typically) longer amortizations, but what are the benefits to the seller? Receiving interest?

I ask this because in doing research on this particular park owner, I am finding mention of various lawsuits that indicate he is perhaps unscrupulous… I know there are two sides to every story, of course, but I just want to be aware of any red flags I should be looking for re: seller financing.

Is it rude to outright ask “why are you offering seller financing?” This park is being sold by the owner directly, not a broker.


The Seller is expecting to get more money.

Seller Financing is preferred by Sellers when the Park will have difficulty getting finance through banks, typically because it will not appraise at their asking price. Really common when there are lots of Park Owned Homes and the Seller uses the home rent component as part of the business value calculation.

Also if the Seller doesn’t need a lump sum today and wants a steady stream of income this works, and will also let Seller spread out gains over time.

But based on what you said about this guy it sounds like he structures the deals so that you’re setup to lose it. Make sure you have a really good attorney get involved to represent your interests and that terms are reasonable, or walk.

I remember another thread somewhere here about being able to find out who the Seller foreclosed on before so you can find out if it was nicknack stuff or they truly were not qualified owners.

Typically you do not get non-recourse on seller financing. Most sellers are smart enough to involve their attorney and most attorneys are smart enough to insist on recourse. So, I would replace this with 1) easy to qualify for. The seller will look at your personal financial statement and they are usually comfortable with just doing that. Much easier than dealing with a bank.

The seller benefits by deferring capital gains, receiving interest, having a passive income stream, a quicker closing, and having a vested interest in a asset they already know well. Most sellers have no idea what they would do with the money so seller financing is a pretty great deal for them as well.

It is not rude to ask why they are doing it. It’s something you should probably find out.

Thanks @jhutson!

Yes I think you are right that this is probably due to park-owned homes. There are around 50 and based on the numbers the owner is valuing them at 35,000 each.

The owner’s wife is a realtor at Sotheby’s so they know what they are doing.

Also, they are in their early 80s. I don’t know if this should affect my interpretation of why they want to offer seller financing.

Thanks @CharlesD for your insight! I am grateful for you correcting me on the misinfo I had re: non-recourse.

Two things on that last thread stand out to me. $35000 for a used 80’s home and presuming a realtor has the slightest idea of what they are doing in the park business. My experience with realtors is that they can be great in one niche but nil in another. ie. Great at selling pricey relocate clients but terrible at finding a cheaper deal to flip.

There are several recent threads on valuation of park owned homes. Depending on age and condition - $5k to $15k each unless the homes are very new. If you calculate an average value of $10k per home, you and the seller are $1.25MM apart in the valuation. With that many park owned homes, you need to do careful due diligence inspections. Seller financing can be great (in fact all our earlier purchases were done this way) but that should not override proper valuation.

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“Two things on that last thread stand out to me… presuming a realtor has the slightest idea of what they are doing in the park business.”

Ha, indeed.

Thank you so much @hsschwar! Indeed we would be extremely careful valuing these homes. I’ll definitely refer to the recent POH valuation threads.

one thing to look at is the reasons the seller may think the park cannot get bank financing and how you are going to change that before the balloon payment is due. You can wind up in a situation where you have to give the park back. Then the seller does it again. I personally would ask the seller to fix whatever is wrong and then try for a bank loan. Some people like seller financing but there are many variables that can happen in a short time. I have done all of my loans with local banks. They are recourse butso far it has not been a problem to pay and the terms are locked in.

When is the balloon and what happens to your note if Sellers are no longer in charge of their finances? If you ever need to negotiate with Seller and the note is in the hands of the executor of their estate, would maybe be a problem. Another reason to have an attorney go over your financing contract.

Thank you @Brandon and @Brian_Z - important things to consider.