How Do You Determine Interest Rates? - Posted by John Estell(Denver)


#1

Posted by MarkHOUTX on December 31, 1998 at 18:58:26:

12.75 is the “industry standard” for MH’s. That industry standard comes straight out of Lonnie Scrugg’s head. He just likes it b/c he doesn’t want to get into the “teens”, like thirteen, fourteen, etc. Staying out of the teens probably makes it easier for the buyers to swallow. Additionally, Lonnie more or less points out if you get dragged into court it might not get the Judge on your side if he sees you charging 17.5% on a used MH deal.


#2

How Do You Determine Interest Rates? - Posted by John Estell(Denver)

Posted by John Estell(Denver) on December 31, 1998 at 12:47:03:

When you offer seller financing how do you determine what interest rate to charge? I see so many using 12 to 12.75%. Where does this figure come from. Thanks.


#3

Re: PFA - Posted by Lonnie

Posted by Lonnie on January 01, 1999 at 08:26:38:

Hi John,

My interest rate (12.75% was a PFA (plucked from the air) number that I used when I first started selling MH?s. I didn?t want to quote numbers in the teens because I felt that just sounded so ugly. So over the years 12.75% has become the “industry standard” on used MH notes.

But keep in mind, most of the people that buy the type homes we sell are only concerned with two things…“How much down? How much a month?” Some of my buyers don?t even ask what the interest is, or how many payments there will be. For instance, I showed a home yesterday (yeah, New Year?s eve) and the couple that wants to buy it still hasn?t asked what interest rate I?m charging. After telling me that they could pay $1,000 down and $350 monthly, they asked “about” how long would it take to pay the loan off.

Remember, you make your profit when you buy and you get paid when you sell. If you buy right, you can take back a note with zero interest and still make a good profit and yield. In fact, if your profit and yield is determined by the interest rate you charge, you?re paying too much for the home. Hope this helps.

Best wishes for a great?99,

Lonnie


#4

Re: How Do You Determine Interest Rates? - Posted by SCook85

Posted by SCook85 on January 01, 1999 at 02:05:48:

John,
When it comes to mortgages you have 2 markets, prime and sub-prime. The type of people who seek owner financed deals are those who at best can qualify for the sub prime market which generally offers rates of 9.5-12%. These notes are usually created and sold off in the secondary market where they are being bought up at yields of approximately 11.5% right now.
Owner financed notes fall into this same category. You are welcome to sell your homes with 5% interest or 15% interest. At 5% interest you will more than likely lose half of the face value of your note if you tried to sell it in the secondary market. At 12% interest you should be able to get close to face value. Most informed investors will charge an interest rate that will yield them close to face value of there note amount in the event they ever wanted to sell it.

Hope this helps.

SCook85


#5

Re: How Do You Determine Interest Rates? - Posted by Rob FL

Posted by Rob FL on December 31, 1998 at 16:43:40:

Just make your offer. I bought a SFH recently and we agreed on 7.5% for 5 years and 8% for the next 10. For 12-12.75% you should probably go to the bank (if you qualify) since they currently offer about 8-9% on investor loans.


#6

Re: How Do You Determine Interest Rates? - Posted by John Estell(Denver)

Posted by John Estell(Denver) on December 31, 1998 at 17:42:14:

Rob, thanks for the info, I’m talking if you are the seller and you finance the property to a buyer. In mobile homes I see 12 to 12.75% all the time. So there is a difference between mobiles and SFH. I take it that for a SFH I would do owner financing at from 7 to about 8%. Are you saying it’s up to the owner and buyer to determine. They don’t have to look at the prime or anything. Thanks.


#7

Re: How Do You Determine Interest Rates? - Posted by Rob FL

Posted by Rob FL on January 01, 1999 at 24:14:21:

Sorry I misunderstood. I am not sure on mobile homes because I haven’t done any. I would assume that unless there is a law to the contrary that the interest rate is subject to contract between buyer and seller. Usually a minimum of 6% for the IRS standards and a maximum of 18-21% depending on state usury laws.