Day 30: Seller Financing Deep Dive Structuring the Note

Howdy folks, and welcome to day 30 of the Boat and RV 100 Series. I'm Joe Downs with Storage Mobiles, and today I am going deep on seller financing, the structure that closes more boat and RV deals in the $400,000 to $2-3 million range than any other, and the one that most operators don't fully understand if— until they're already in a negotiation. Here's what I want you to take away from today. Seller financing is not a fallback for buyers who can't get a bank loan. It's a strategic tool that creates better outcomes for both sides of the transaction when it's structured correctly. The operators who understand it well use it on deals where they could qualify for conventional financing because the economics are better. Remember, a mogul isn't just someone who owns a storage facility. A mogul is a sophisticated operator of storage facilities, someone who understands the full arc from finding a deal to running one. That's the standard we hold ourselves to, and that's what we're here to teach. We don't buy storage, we acquire and optimize it. That distinction might sound small, but it tends to show up as tens of thousands of dollars per deal when you get it right. We're made up of real people too. The husband and wife team, the solopreneur, the entrepreneur who are actively in it. They're doing it. Nobody here graduated to a stage and stopped working. We're evaluating real deals right now, acquisitions between $400,000 and $2 million. Why that range? Because they're financeable and digestible, and we'll walk you through how members in this community are becoming storage moguls. Not someday, right now. So if you want to be a part of that, storagemoguls.ai, that's where we are. You can start for free, you can advance at your own pace. It's a lot of fun. All right, let's get into today's episode. Seller financing. It works in boat and RV because the typical seller profile and typical buyer need align almost perfectly. Most boat and RV facility sellers are operators in their 60s or 70s. who built their facility over decades. They own it free and clear, and they're looking at retirement that needs monthly income, not a lump sum they don't know what to do with. A seller note at 6 or 7% interest secured by the property they built pays them reliably every month for years. That's often a better retirement outcome than a full cash sale that gets reinvested, sometimes at lower rates. And the installment sale treatment for capital gains is a meaningful tax advantage for sellers in high income brackets. By spreading the gain recognition over the note term, the seller may pay significantly less in capital gains than on a full cash sale in one year. This is a legitimate, often decisive factor. Always suggest they discuss it with their CPA. For the buyer, The seller note bridges the equity gap without adding a second institutional lender. It reduces the cash required at close, keeps the seller invested in a smooth transaction, and often allows a full asking price offer because the structure makes the economics work where a lower all-cash offer might not. And the lender education problem is partially solved too. The seller finance portion doesn't require a bank to underwrite a seasonal cash flow. The seller already understands the asset better than any underwriter would. Mm-hmm. Here's 7 terms, and every one of them matters. Here's what— here's what I want you to know about each. Note amount: 20 to 30% of the purchase price is the target range. This is the slice that bridges the equity gap, the portion the bank won't lend and the buyer doesn't have in cash. Sometimes the bank takes the first lien position, the seller takes the second. Interest rates, they're going to vary 5.5% to 7.5%, depending on the market rate environment and the negotiation. Most sellers in this vertical are not sophisticated bond traders, though. They care more about receiving a reliable monthly payment than optimizing the rate. So offer a fair rate, though, not the floor. A seller who feels well-treated stays cooperative through the transition period. Look for a term of 5 to 7 years that matches the bank balloon loan. When you refinance, if at year 5 or 7, the seller note gets paid off simultaneously as well. It's a clean exit for both parties. Amortization. You want to negotiate for the longest amortization possible, 20 to 25 years. A longer amortization means lower monthly payments on the seller note, which means better DSCR on your combined debt stack. The seller note balance paid down slowly is fine. Because it's secured by the property. Subordination. The bank is going to require the first lien position, which means the seller note must be subordinate. This is not negotiable from the bank's perspective. You need to frame it to the seller as a standard practice, something like, the bank requires first position. This is how every seller carry commercial deal is structured. Prepayment without penalty is important. Always include this. If If interest rates improve and you want to refinance the entire stack early, you need the right to pay off the seller note without a penalty. Security via the deed of trust. The seller is protected by a lien on the real estate. This is their assurance that the note is, is backed by something real. You need to explain it to them that way. Timing and framing determine whether seller financing is received as a creative opportunity or a red flag. And you got to get both right. Never lead with it on the first conversation. Introduce seller carry financing after you've established rapport, after the seller has expressed some interest in moving forward, and ideally after they've mentioned something about what they plan to do in retirement. Their retirement plan is the opening for the income stream conversation. Frame it as a benefit to them, not a workaround for your equity constraint. Some sellers find this useful because it creates reliable monthly income and may defer capital gains. Is a seller benefit, and that's a great way to frame it. Or, I need you to hold paper because I don't have enough down payment, is a buyer need frame. That doesn't sound as good, does it? The first opens a conversation. The second closes one. Present it as a path to full price. Many sellers won't accept a lower all-cash offer— will— I'm sorry, many sellers who won't accept a lower all-cash offer will accept Full asking price with a seller note because the total they receive over time is the same or more, and the monthly income is actually more useful to them than a lump sum. Keep the initial conversation simple though. You hold a note, we pay you monthly, it's secured by the property. The details of subordination, amortization, and prepayment terms come after they've agreed to the concept in principle. Don't lose the deal by introducing complexity with big words Before that, the seller is— had maybe never heard and emotionally hasn't accepted the idea yet. Let's run the math on a million-dollar boat and RV acquisition. Same deal, 2 different structures so you can see it. Start with the clean conventional. Bank lends 70% at 7% over 25 years. So 70% on a million dollars, $700,000. Buyer brings $300,000 cash. The monthly bank payment On that $700,000 is approximately $4,650 per month. No seller note, deal closes, but the buyer has now deployed $300,000 of capital. Look at a conventional note now with the seller note, seller carry. Now, and you notice that we can change the terms with the lender to make them even happier. Now we only want 60% from the lender. So that's $600,000. The seller holds a $250,000 note, let's say in this example, at 6.5%, amortized over 20 years. Now the buyer only has to bring $150,000 in cash. The monthly bank payment on the first note is $3,980. The monthly seller note payment at those terms is $1,870. Approximately. So combined, the total monthly debt service is $5,850, which is about $1,200 more than the clean conventional scenario in one— that's the first scenario. The trade-off is the buyer pays an extra $1,200 a month in debt service, but they don't have to come up with an additional $150,000 in capital. That $150,000 could go towards the next deal if they have it. Toward value-add improvements at the facility or toward operating reserves. That makes the first year easier, or it just gets the deal done because they didn't have it. The seller gets $1,870 per month for 20 years. That's $224,400 in total note payments plus their $750 at close. Over the life of the note, they receive more than the full purchase price. The full— yeah, that's the seller benefit argument. That makes the structure work for both sides. Here's 5 seller concerns that you should know the response to before you sit down at the table. These are very common. What if you stop paying is the most common. It's the most number one concern from a seller when, when we're introducing this idea. You want to address it confidently. Simple responses: the deed of trust gives the seller the right to foreclose if payments stop, exactly like The first mortgage. The property is their security. Just explain it clearly and calmly. Sometimes they'll ask, what if the property loses value? Well, the bank's first lien at 60% LTV means the property would need to lose more than 40% of its value before the seller's second lien position is at risk. In a stabilized boat and RV market with documented demand and the seller knowing what they're selling you, that's a remote scenario. Then you should point it out that way. My CPA said sell it outright. It's very common. I would suggest they go back to their CPA with the specific questions about the installment sale tax treatment versus the lump sum tax treatment. Many CPAs just give generic advice without running the installment sale numbers first. The analysis may change, and I suggest it will when they do. I'd rather have the cash is sometimes a response, and that's an emotional objection. more than it is a financial one. The counter to that is practical. What would they do with the $250,000 today in cash on top of the $700,000 they just got? If the answer is conservative investment, a note, let's say, secured by real estate or a CD, they know it's 6.5%. Maybe it'd genuinely be a better outcome, especially in a property they know. What if you sell the property? Well, that's your standard due-on clause in the note, means the seller gets paid in full at any subsequent closing. They don't need to worry about a new buyer not honoring the note. It triggers the full payoff. And here's 5 documents you're going to need in every seller financing transaction, and they need to be executed properly. Promissory note is the debt instrument, the formal record of the obligation. It states every term, the amount, rate, amortization, payment schedule, prepayment rights, Etc. The buyer signs it. You're going to want to have a real estate attorney draft it. This is not a form you're going to pull off the internet. The deed of trust or mortgage secures the note against the real property. It's recorded with the county and it creates the public lien record. This is what gives the seller the right to foreclose if payment stops. It must be properly drafted and recorded to be enforceable. The subordination agreement documents all 3 parties' agreement on, on lien property. Our priority. The bank is in first position, the seller in second. All 3 parties sign. The bank will require this before they will close the loan. Loan servicing. You don't have to, but a third-party servicer can collect and process monthly payments and send statements and maintain the payment history record. This keeps the relationship between the buyer and seller professional and removes any ambiguity about whether payments were made and when. Typical cost on something like that is $25 to $50 per month, but it's worth every dollar. Disclosure to the bank. The seller note must be fully disclosed to the first lender before closing. An undisclosed junior lien is a material misrepresentation on the loan application. So disclose it upfront, provide the subordination agreement, and confirm the bank's approval of the structure before you go to close. Do it early in the process too. Don't wait until the end. Folks, seller financing is a skill. The operators who master it close deals that the operators who don't understand it walk away from, not because the deal doesn't work, but because they couldn't structure it. These are the 7 terms you need prepared: note amount, interest rate, term, amortization, subordination, prepayment, and security. Get all 7 right before you present the structure to the seller. Frame it for the seller first. It's an income stream, a potential tax advantage, full price offer secured by the property they built. Lead with their benefit. The mechanics come after they agree to the concept. And document it correctly. Promissory note, deed of trust, subordination agreement, loan servicing, full bank disclosure. This is not the place to cut corners. A $1,000 attorney fee Protects a $250,000 obligation. All right, next up, day 31, closing the deal from the PSA purchase sale agreement to the keys. Everything that happens in the final 30 to 45 days before you own the facility. Like this video if the seller note math made a deal that felt out of reach start to feel possible for you, and subscribe by ringing the bell so you don't miss day 31, the closing episode. That's where we walk through the purchase and sale agreement, the title process, the final walkthrough, and what happens at the closing table. And share this with someone who's told you they can't afford the down payment on a deal they believe in. Seller financing may be the answer they didn't know existed. The seller note is one of the most powerful tools in this vertical precisely because most buyers don't know how to use it. Operators who do get to full price with less cash out of pocket and close deals with sellers who are now financially invested in a smooth transaction. That's a better deal for everyone. And you can find the template at storagemuggles.ai. Tomorrow, from signed PSA to keys, the final stretch. Thanks for listening, watching. See you tomorrow. Bye.