Using Higher Interest Rates as a Tool to Get Seller Carry

And we all want it. It was to me when I bought my first deal, that was as exciting as the deal. Dave also loved seller financing. But you have to have some way to get it. And right now this higher interest rate environment can be used as a tool to obtain it. This is Frank Roth with the RV Park Mastery Podcast. We're gonna talk about using higher interest rates as a tool to obtain seller financing.

So you know, there's a silver lining to every storm and one of those silver linings right now with the way things are going with interest rates is the fact it can be used as a very, very good tool. to get the seller to extend credit to you and to actually act as the bank. So how do you do that? How do you use higher interest rates as a tool? Well, the first way to get seller financing, the old standard is in some cases, you give the seller two prices.

One price is if you pay them in cash, and the other is if you pay them on terms. And many sellers, when they see that they can make substantially more if they carry the financing, they will agree to it. It's just pure math. If you said to someone, well, I'll buy your R V park for five hundred thousand dollars in cash, or I'll pay you six hundred thousand dollars if you carry the financing.

Many sellers will look at that and say, wait a minute, I want the 600. I'll carry the financing. Of course we're really doing that as a tool. We're trying to contrast the cash price against the terms because if the terms is higher, we're hoping they'll take the terms. But that's one way to approach it. That doesn't really tie too much to the fact that interest rates are higher right now. That's always been the gold standard, the original kickoff way to try and get them to carry.

However, one time you can use the higher rates as a tool is if they say, well, I'll take the cash price. Because we know that the cash price inherently is going to require banking. And many of your RV park owners out there who are older Americans who've been through a lot of banking struggles in their past, when you get into banking, that always concerns them because they know how hard it is to get a loan and how hard it is to get an appraisal and everything else.

So that gives you the ability to go back to them once you start up the deal, you're paying them cash to go back to them and say, look, uh, I'm gonna pay you cash and everything, but I went to the bank. And the bank says they won't give me as much money as I thought. So the sum of that loan plus my de pound payment, I'm going to have to get that price reduced.

Or you can blame it completely on the bank and say, Look, the bank looked at it and I love the deal, but they said, No, no, no, we don't think that deal is worth that much. So we won't make the loan if you pay a penny more than X. So now you have an ability to go in to a seller who's already concerned this may occur because they're reading in the media of all of these higher rates and they knew what higher rates mean. They've been around the block more than once.

So they know it's very, very likely they're gonna have to negotiate that price down because even though you say you'll pay cash, they know that it that requires banking and they know that when you go to get your loan, it's very, very possible that in fact you can't get it and you can't get it at that price.

Also, higher interest rates allow you to obviously pay more interest on that seller-carry note. As long as interest rates were kind of low on those bank loans, the amount you could offer the seller really wasn't that astounding. But today, if it's going to cost you on that RV park loan 7% interest.

Well, if you offer sellers 7%, man, that is sounds really good to them. Because right now, if they were to go to Treasury Bill or a CD or something that's also asset secured, they're only gonna be getting about 4%. So you're going to be able to pay them almost twice what they could make conventionally through their local stockbroker or group like AG Edwards. So that one item is gonna help people get a lot more seller financing because if you offer the bank rates right now, you will be a hero.

You're gonna be offering people a rate that's very, very, very attractive. Now, I I I'm almost 62, so I was around back when CDs were 10%. That's where they were back during the Reagan administration. And man, selling CDs for those banks back then was so easy because everyone wanted a safe ten percent. But rates are not too much different now. And if you offer someone 7% on a seller carry note, well, that's almost that's almost got the little bit of the Reagan on it.

Now you might say, but it's not quite the same as the C D, it's not as safe. Well, what do you mean it's not as safe? That C D is backed up by a bank and yeah, the bank's got FDIC insurance if they actually ever, ever paid out. Who knows what would happen in the event of a national banking crisis? But your loan is secured by the property that the guy owns and knows very well.

And real estate secured notes are very, very attractive. People even will buy those. You can put a real estate secured note out there on the internet and people will buy it all day long. But that new higher rate, that's really, really, really going to help in your mission to try and get seller financing.

Also, you can use banking instability as a talking point. Ta'll explain how the deal is getting killed on the appraisal or the delays involved in the third party reports. And often the seller is gonna go ahead and carry because he just doesn't want to wait any longer. Right now in a post COVID world, you're seeing uh banking take longer than it ever has before.

So if you want a loan today, the process, the time to get the loan, the third party reports, it's a very, very long adventure. And moms of pasture perennially having to go in and sign up for extensions. Because people can't get the job done in time. It's not always their fault. Sometimes the bank can't get it done in time. Maybe the bank's attorney's on vacation. Maybe the bank's attorney's got long COVID.

Maybe the surveyor can't get the survey done. So for whatever reason, there's a whole sense of time. And let's be honest, liberty moms and pops who sell the RV park, they want an immediate sale. They want to get it done quickly. They want to move on. They've already hatched a plan. They're going to go ahead and sell the RV park and they've already looked at homes down on the ocean in Florida where they always wanted to be.

They've been out shopping, Pop's already been to Bass Pro Shop. He's got this boat he's has his heart set on and uh the bottom line to it is they wanna move and they wanna move quickly and they're older and they don't have a lot of time. So just the fact of time may also allow you to convince mom and pop that it would behoove them to carry the paper because they can get it closed now. When you carry the paper, the mom and pop can sell that RV park.

Literally the day after due diligence ends if you're ready. You don't have to have any any of those normal triggers that are required in banking world to get things executed and done. So time is another driver as to why uh seller financing can be achieved. And another issue is with all of this instability that we're seeing with interest rates and everything else going on.

Mom and pop typically they don't want to wait around because they're just concerned about how everything is going. You probably have seen that seventy percent of all Americans right now think the economy is heading in the wrong direction. Well, probably a hundred percent of RV park owning moms and pops already feel that way.

So clearly all this instability, the higher interest rates, everything else that's going on, that's going to give them more of an impression they need to move and they need to move now. The time doesn't work for them, not just because they picked up that boat or that Florida home, but because they know as well as anyone that time kills deals. I've I've always had that as my first little plaque on the wall that says time kills deals.

And that's always been the case, and older Americans know this. And so when times are strange like they are right now with instability and higher rates, that's a driver for many older Americans to say, wait a minute, I don't want to wait around any longer. I want to go ahead and get this RV park sold. I want to get done now. And oh yeah, I'll carry the paper because man, I really, really want to get this out the door.

The bottom line to it all is that higher rates do give you as an RV part buyer some advantages. Now you'll say, well, but wait a minute, what about my payments? Yeah, your payments are going to be a little higher. There's no question of that. I can't help it. If interest rates go up, then your payments will also go up. But if you buy properly on the front end and you plan for that occurrence, that shouldn't hold you back.

Buying RV parks has always been about spread, getting a healthy spread above the interest rate on the loan, and using sensible leverage. And there's nothing right now that stops that even though rates are higher. People are still buying RV parks, you're still buying them well, because they've planned for that to occur. However, if you can get seller financing in any way you can get it, that's always beneficial. That's why it's always been our favorite form of a loan.

This is Frank Roth, the RV Park Mastery Podcast. Hope you enjoyed this. Talk to you again soon.