When you buy an RV park you are frequently dealing with moms & pops that own the properties free and clear. And these type of sellers frequently offer carrying the paper as part of the process. But if you’re going to embark on seller financing – our personal favorite type of lending – there are three important items that you must address in any seller note, yet many buyers miss.
If you want to give yourself the ultimate peace of mind and liquidity potential, then include assumability into your seller note. This means that you can sell the property at any time and the new buyer steps into your shoes and does not require a bank loan, either. Let’s model out how important that is. Let’s assume that you want to sell your RV park just a year after your bought it due to a medical emergency, then all you have to do is to find someone who has the down payment and you can close immediately without the need for them to find a bank, do an appraisal, go to loan committee – a process that can take months. This give you terrific peace of mind.
Notice to cure
A ”notice to cure” simply means that, if the seller does not get their note payment on time, they have to notify you and give you time to make the payment before the note goes into default. While this makes complete sense, in many states the seller can call the note due in full if you simply miss the payment date, and they have no requirement to notify you first. This is a terrible risk and one that can be easily corrected with the inclusion of “notice to cure” language.
If you are buying an RV park that comes with additional land or other assets, you might want to sell those off in the years ahead – but you can’t unless the seller gives you a “release” on that part of the collateral pool for their loan. For example, let’s assume that the RV park comes with 50 extra acres of land. Years later, you get an offer from a realtor that represents the town doctor who wants to build their dream home there. Can you sell it? No, not without the note holder’s consent. And if you wait until later, the cost of that release may be higher than the offer on the land. A better idea is to work out any possible “release” scenarios when you first construct the note. You would include in the note that you have the right to sell that 50 acres for a one-time release price of $50,000, for example. Then you have the situation covered if it ever arises.
Seller financing is one of the best attributes of many RV park deals. But a normal seller note can be made much better with the inclusion of the three points shown above.