How can seller afford down? - Posted by Daniel (FL)

Posted by Tobe on December 25, 2000 at 20:53:27:


I had a PM that said the same thing about renting but I guaranteed the lot rent if the buyer didn’t pay and they were ok with that. You might want to ask them if that would be alright. Make sure your renter pays though.


How can seller afford down? - Posted by Daniel (FL)

Posted by Daniel (FL) on December 23, 2000 at 16:22:33:

I bought my first two mobiles this month and now have two very interested buyers. However, they each have only $500 to place for down payment. I think that will actually deplete their savings. But, they also have to pay the following upon move-in:

$322 lot rent
$50 non-ref Park credit check
$275 Insurance premium
$413 sales tax
$60 Reg and Title.
That adds up to $1,120 without even taking into account my down payment!

I understand I could pay for some and then add to the note, but what is the best way (and most affordable for the buyer and me)? Requiring someone to have $1600 (down payment plus all the other expenses) is not too realistic in our market and defeats the purpose of selling these homes for low down payments…

Thanks for the advice!
Daniel (FL)

Re: Some suggestions - Posted by Ernest Tew

Posted by Ernest Tew on December 25, 2000 at 04:38:56:

Hi Daniel:

One of the problems in Florida and other states that charge a sales tax on homes is that it must be paid every time we change the name on the title. If (when) you get the homes back and resell them, you will have the same problem again.

We minimize the problem by taking title in our name (a corporation or other entity with limited liability) and pay the sales tax on the wholesale cost. Although we offer the homes “for sale,” the documents used are a Net Lease Agreement and an Option To Purchase. No matter how many times we have to “sell” (net lease) the home, no sales tax will be due until and unless the option is exercised. At that time, the tax is lower because the price is lower.

To minimize defaults, we always get at least $750 to $1,500 down. If the buyer appears to be responsible and their credit isn’t too bad, we may take a Promissory Note for some of the down payment. If so, we try to get the buyer to secure the note with a vehicle or other asset. We also ask them if they have a friend or relative that will co-sign on the lease and/or note. We find this helps to minimize defaults. And, even if they skip out before paying off the note, you can take them to small claims court without hiring a lawyer.

Since the title stays in our name until the home is paid for, we take out the insurance and the “buyer” reimburses us by paying three months’ premium before moving in and 1/12 of the premium is added to the monthly payments.

Used correctly, this approach also solves the problem of having to pay income taxes on the entire gain in the year of sale. And, since you are “renting” the home, you can take depreciation to offset some of the rent.

If you would like to have a copy of the forms we use, please send me an e-mail.

Good luck,

what I do is wrap it all into the note - Posted by Dirk Roach

Posted by Dirk Roach on December 24, 2000 at 01:39:08:

Here in CA, we always get hit with high sales tax (7.75%) so that always stinks. However I always take that into account when I buy. So I simply wrap transfer fees etc into the note.
However that being said I want my buyers to lay down at least a grand…min. I want them to have something into the pot.
The majority of my buyers make somewhere between three and four hundred a week. I want a couple of weeks work in the pot, so that they think twice about skipping etc.
Anyhow hope that helps.
PS You might also think of takeing something else to make up the difference…car title etc. Or stretch out the downski…hundred bucks a week or some such in addition to the five hundred.

Re: Some suggestions - Posted by Daniel (FL)

Posted by Daniel (FL) on December 25, 2000 at 14:51:28:

Hi Ernest and thanks for the suggestions!

I’m only doing business in one park right now, but the PM does not allow renting. She wants the title in the buyer’s name and me as a leinholder. So, I’m not sure if the Lease and Option to Purchase would work.

I do understand how this approach would lower taxes though. I’ll be attending a MH Dealer class at the DMV in January. I will have to pay $300 fee and have $25K surety bond to become licensed(if I decide to), but I’ll then be able to buy all my homes tax-free for re-sale. The buyers won’t escape the tax of course.

I think I’m mainly running into these problems because both of my interested buyers only have $500 to put down. Both you and Dirk say that’s not quite enough. So, I think I’ll explain all the expenses involved up front and maybe wait out for buyers with slightly deeper pockets.

I’m thinking of explaining to future buyers this way:
(a) Buyer puts down at least $500 (10%) and they pay all fees (sales tax, title transfer, insurance premium, etc.), which will amount to $700 or so in addition to down payment;
(b) Buyer puts down at least $1,000 (18%-20%) and I’ll pay fees and then add that to the note.

What do you think of those options?
By the way, I’m planning on selling these two homes (2/1s) for $4900 and $5900.

Thanks again for the advice.
Merry Christmas,
Daniel (FL)

Re: what I do is wrap it all into the note - Posted by Daniel

Posted by Daniel on December 24, 2000 at 14:27:31:

Thanks Dirk. With your buyers laying down at least a grand, how much would your typical MH sell for? I’m selling these two for $4900 and $5900…I was thinking 10% down, which would be about $500 or $600.

Also, so you pay all the transfer fees, sales tax, etc. for the buyer (if necessary) on day one and then add that onto the note? That way, the buyer would just have to come up with down pmt and lot rent (due Jan 1)?

If I took their car title, would that just be collateral until I get the down pmt necessary?

Thanks so much for the info!
Merry Christmas!

Daniel (FL)

Re: Some suggestions - Posted by Ernest Tew

Posted by Ernest Tew on December 26, 2000 at 05:19:10:


You appear to be underestimating the amount of sales tax a buyer would be required to pay. And, it is due each time you get the home back and sell it again. In Florida, it is 6% of the selling price. And, some counties tack on an additional sales tax.

We have found that these and other handicaps can be avoided by using a net lease with an option to buy. It isn’t difficult to convince park managers and customers that, for all practical purposes, you are selling the home. But, for business and tax reasons, the documents are set up as a net lease with an option to buy. A down payment is charged but treated as option money. My book, “How To Get Rich Helping Others,” explains in detail how to do it–and includes tried and tested forms on computer disk.

While most people insist on figuring things out for themselves, some choose to avoid a lot of mistakes and save a lot of time and money by learning from the experience of others.

As mentioned previously, a lease and option solves many other problems and cuts costs for buyer and seller alike. Handled correctly, the customer will still think of themselves as “owner,” which is important.