Donna Genie breaks down seller financing for campground sales when bank rates hit 10-11%. You can offer 8% instead, close faster, and get steady income, but you risk buyer default and the headache of repossession. Most deals balloon after five years so buyers can refinance.
10 to 11%.
8%.
About five years (short-term with a balloon payment).
If you've been thinking about selling your campground, the current interest rate situation makes that a little more difficult than it used to be. Campgrounds are still in demand, but it is difficult to finance them and pay the same price tag anymore because interest rates are up there. SBA loans are going to be running in the 10 to 11% range right now. That is a hard pill to swallow and still make money and make this a good effort. So many are considering seller financing. Let's talk about it. Should you consider seller financing? What are the benefits and what are the risks? First, let's talk about the benefits. Because interest rates at the SBA are so high and for banks, you may be able to get a pretty good interest rate on your own. So if we're talking about doing all of the hoop jumping for an SBA loan at 10 or 11% plus, plus all the fees they tack on top of that, what if you were to sell it at an 8% interest rate? Basically, you carry the note and the new buyer would make their payments to you instead of the bank at 8%. That's a heck of a lot better than you get in most CDs or in your money market accounts or your retirement accounts. Maybe that's a good idea. Sounds promising. Also, they can usually close faster if it's a seller financing deal because we don't have to go through all the delays of underwriting at a traditional financer like a bank or the SBA loans this one. So faster sale, probably easier on you as a seller. All right, let's talk about the risks. The risks are that the buyer defaults and they don't make the payments to you. So what's your remedy in that situation? Well, you can request collateral when you do the seller financing. So collateral might be some asset, some insurance account, a life insurance account, maybe they have a money market or some other kind of source of funds that they want to keep hold of or don't have access to. Perhaps they own real estate or investment properties or other things that aren't easily liquidatable, you may have collateral. And if they default, that means that you go after the collateral. Now, obviously, you're going to have to pay some attorneys in that default situation as well. So add that into your list of cons. The second part of that is the collateral may, in fact and usually is the campground. If they default, you would have to take the campground back. You'd be the repo man. You're going to repossess and foreclose on the campground. And now you own a campground again, Are you willing to run that campground? What if they destroyed your reputation? What if the guests leave? What if they have some bad situations going on in there? Maybe that's why they couldn't pay you some. So it's a risk. Will they destroy the campground? Considering seller financing is a pretty big deal, you need to really know your buyer well and have a lot of faith in them and have some collateral to back that all up. Because it could be a bad situation. On the other hand, could be a really good one. It could give you a good return on your investment and give you a stream of income over the next several years. Typically, seller financing agreements are maybe after five years, they have to refinance, refinance, or you renegotiate and decide if you want to renew that. They're usually shorter term with a balloon payment at the end so that somebody could go out and refinance hopefully by that point and. Or if it's a good deal and working out well for you, you may want to continue. So I hope that helps give you a little bit of feelers about how seller financing works and the pros and cons. If you're interested in selling your campground and need more information to make a good decision, we're here to help. Check out campgroundaccounting. Com. Thanks.
