A short tutorial by Donna Bordeaux (Campground Accounting) on creative financing strategies to buy or sell campgrounds in a high-interest-rate environment. It explains seller financing (large down payment, 3–5 year terms with balloon payments, tradeoffs between sale price and interest rate, and risks like withheld cash or broker bait-and-switch) and master lease with option to buy (operate first, lock in purchase price, apply rent toward purchase). The presenter offers analysis services to evaluate deals.
Chapters
Today's economic conditions and interest rates specifically have made it really tough to facilitate deals both as a buyer or a seller of a campground. I'm Donna Bordeaux with campgroundaccounting.com and I've got some ideas for you on how to creatively look at making those deals still work even with interest rates as high as they are. Let's get a little creative and dive into how things can happen to facilitate a deal and get smiles on both the buyers and the sellers faces. All right, one of the common things we're seeing right now in the trends is seller financing because traditional financing is so expensive with interest rates. Got a little more creative in some seller financing deals right now with seller financing, that means that you sell the park to someone else. Perhaps they pay you a portion of the cash, like a large down payment to make sure that you get enough cash to exit the deal appropriately. But they'll continue to make payments throughout the next several years at a little lower interest rate than you might get if you went to a bank or an SBA type loan. Now, in those situations, the common thread here is that generally those positions last three to five years and they have a balloon buyout at the end of them. When we're doing the seller financing, the goal here is to get it to where interest rates are a little more favorable and you can refinance that loan through a bank or traditional lender at the end of that time frame or at any point throughout and get the seller their money to exit the deal fully. Now, those can take a little challenge here and there, and typically what we're seeing is that the sale price goes up because the interest rate is lower. That's just a balancing act of the interest rate and the sale price to make that deal work for both parties. Now, you do have to watch. I've seen a lot of kind of bait and switch issues coming up where a broker will attempt to facilitate a deal. They'll offer a high selling price, but then there will be a lower cash payment like they were going through traditional financing. But then they'll come back and say, well, if you finance it, we'll give you a little more cash up front. But you got to really make sure that that deal makes sense with the interest rates involved because you could also, as a seller, be earning money on that interest after you've exited the campground in the traditional markets. So we do some analysis to help buyers or, I'm sorry, sellers, understand if these things are a good deal for them or if they're kind of getting roped into a bad situation. So take that and make sure that you're analyzing that information well. Also, in that kind of solution, sometimes the cash may be withheld by the buyer so they don't have to make as big of a down payment through traditional financing. And they can use some of that cash to spruce up the operations to make improvements to the park to get it earning more money so they can pay you off faster. That's another point of view in the negotiations. Another creative part, and you got to be a little more careful with this one, is a master lease with an option to buy. This is a situation, especially in a more quick sale. Maybe you have health issues of an owner or something like that that may be very helpful. In this master lease, they're basically leasing you the operations of the campground because you can't buy it as a buyer yet and you have the option to buy. Typically you're paying a rent payment for the entire operation each month and perhaps in that agreement a portion of that could be applied towards a purchase price. Or you are making bulk payments at the busiest time of the year towards that option for a purchase price. The advantage here is you're locking in the sale price today for a future buyout. So it may be a win win for both the buyer and the seller. This allows you to take over the park's operations and start improving it and increasing the value. But locking in that price and assuring that you have a deal and you're not just working for somebody, you're actually working towards the purchase of the part. So big picture here, think outside the box. There are often a lot of creative solutions that can be employed when market conditions make it hard for traditional financing. I'm Donna Bordeaux with Campground Accounting. If you are in the mood to buy or sell, I am here to help you. We have perfect programs to help you facilitate those deals, analyze them and make sure that you are getting the best deal possible.
