More on 0% - Posted by Steve-WA

Posted by Greg Meade on August 15, 2003 at 08:33:44:

I am 52 and this was an over 40 park. I did not have to pull credit as the pm was very aware of what i was doing. In an adult park everyone seemed to know what i was doing!!! I had basically 30 days to rehab and resell and was able to do so! Most of the over 55 parks here in FL are 50% empty in the summer(snowbirds) and are totally full in winter. This is great for park owners here.

More on 0% - Posted by Steve-WA

Posted by Steve-WA on August 13, 2003 at 17:16:21:

It occurred to me today: would a 0% interest tag garner more response for a MH in a 55+ community? I think it would be a valid way to increase response.

I am interested (no pun intended) in this debate; I can see both sides. People are interested mainly in monthly and d’payment - interest does not bother them. I have done one @ 0%, because the buyer winced at my quote of 12% interest. It went like this:

“What percent would you like?”

“I’d like no interest!”

“I could do that - I’ll need to raise the price of the home to balance our risk - that’s fair, isn’t it?”

“No problem - 0% interest, for real? That’s great!”

Guess how much I raised the price of the home.

I know that many Lonnie dealers set the terms, and say take it or leave it. I figure, if I can change the terms so that both sides see that they win, then it is a successful negotiation. I mean, really - - - how can a Lonnie dealer lose by giving in a little?

Especially for seniors, I think that a 0% deal would be attractive. Many of us agree that it is tough selling to seniors - narrow market. To get an edge on selling in a 55+ park, I wouldn’t mind sacrificing the interest portion of a payment - it’s not the main profit generator anyway. Just gravy - grandma can have the gravy; she deserves it.


Beware! the IRS layeth in wait - Posted by Dr. Craig Whisler CA NV

Posted by Dr. Craig Whisler CA NV on August 15, 2003 at 15:57:40:

Ever heard of the IMPUTED INTEREST RULE.

I don’t even know if it still exists but I suspect it does. When does the IRS ever eliminate any chance to help us dispose of our money?

Lemmee see. I’m not sure that I’ve got this exactly right but I think it goes something like this: You sell your mobile with zero interest. The buyer gets to deduct the interest he doesn’t pay you from his tax return and you have to pay income taxes on the interest you don’t receive. The interest rate that doesn’t exist is usually the legal rate or about 10%

Right? What could be simpler?

Check with your tax advisor before giving o interest rate loans.

My interest in zero interest rate loans is just that: zero: unless…

This is, however , a great little tax tidbit to know in case you ever GET a zero interest loan. You can deduct it from your tax liability as an expense, at the legal rate. IMHO this is an often overlooked but clever litttle way to make a bundle after you’ve just made a bundle.

Irony on a stick? I’m told that the IRS doesn’t generally try to enforce this rule because it is a no-win situation for them. Think about it for a minute. If they collect the taxes on the sellers return, they just have to return the money to the buyer on his return.

Just remember that if you are the buyer on a zero interest loan to USE this on YOUR tax return. Its great to deduct something you didn’t pay in the first place.

Maybe the IRS has a heart afterall.

Regards, doc

Re: More on 0% - Posted by Rod - MO

Posted by Rod - MO on August 14, 2003 at 18:31:49:

One issue that has not been touched on in the discussion concerning 0% financing is the payoff. Are you looking for reasons to encourage an early payoff? Then charge as much interest as you can. Do you want to encourage the buyer to make payments up to the end? Then charge 0%. If you start with 0% and change your strategy, you can always offer the buyer a discount for early payoff.


Re: More on 0%-Note Market? - Posted by patsears

Posted by patsears on August 14, 2003 at 11:01:45:

I realize that, with a tweaking of the numbers, our profit can be exactly the same whether or not we use interest in the final equation. But how would having a portfolio of MH notes with no interest affect our ability to sell these notes on the secondary market? After Lonnie Dealing say, a group of 10 homes, you might want to sell the paper (or trade) for a bigger item like a MHP. Wouldn’t jacking up the interest rate as high as possible make the notes worth more to an investor? Or I’m I all wrong here?


Re: More on 0% - Posted by Lyal

Posted by Lyal on August 14, 2003 at 08:37:45:

Congrats to you Greg and Marty for “tweaking” the formula until it works. I’ve guess I couldn’t relate because, in my market, I’ve never had a problem selling homes (good to know how lucky I have it I guess). I usually just run the ad (no price just my "Will sell on CD line 'cause that’s what people understand here), take the calls and go from there. I set my price at the top of the market and discuss it with them on the phone (yes, they always ask unlike other areas) and if they have some money for a down payment etc we go from there. Unlike Marty, I’ve never really had to negotiate much (one that I sold to a realtor is all I can remember. Dropped from 12.9% to 10%…big deal!). I consider the interest money gravy and the buyer’s never consider it at all. I signed a contract last night for a home that’s much newer than what I usually have (1999). It runs 12 years and the interest alone amounts to 24 grand!

So to those of you who sell for 0% interest (but raise the price to compensate), very astute to figure out what works in your market. For those who sell for 0% but don’t raise the price, think again if it’s really necessary. Is that what is really selling the home for you, or is it just that you’re selling on terms? Don’t cheat yourself out of dollars.
All the best. Thanks for the excellent discussion!!

Re: More on 0% - Posted by Greg Meade

Posted by Greg Meade on August 13, 2003 at 19:39:53:

Steve…had a 12X60 2/2 in an “over 40” (no children)located in FL and after spending over 3k to rehab(roof over, paint,carpet) could not seem to sell. My cost in the unit was 4200. Wanted to sell for 8k, 2k down and 12% int for thirty months w/payments of 232.49. Had lots of lookers, but no $$$$$. Figured i would have made about 1k in interest so i tried an ad with this wording Will finance 1976 2/2 with low down and payments like rent with ZERO interest. My cell phone never quit ringing!! Ended up selling for 2k down,240 per month for 30 months in 4 days. I am going to try this again. As an aside, a lot of people om this forum shy clear of over 55 parks but I like them…folks who bought the home had a FICO of 730 and only live in it 4 months out of the year! Best of Luck!

Re: More on 0% - Posted by Marty (MO)

Posted by Marty (MO) on August 13, 2003 at 18:12:54:

We start at 12% and allow people to buy down the rate to what they want. For instance, if they agree to pay a $1000 down, we knock 3% off for every additional $500 (for this person, a $2000 down would get them financed at 6%). If they can’t come up with any more down and the negotiated monthly payment is $250, we’ll let them buy down 3% for every $100 increase in the monthly payment (if this person increased their payment to $350, they’d be financed at 9%). They can determine the rate if they don’t like the “industry standard” that we use! This has helped us reduce the “flinching”…

Re: Beware! the IRS layeth in wait - Posted by dandrews-ME

Posted by dandrews-ME on August 15, 2003 at 18:22:55:

First, I confess that my accounting degree is very dusty, not to mention out of date. Plus, I only did accounting until 1983 when I was able to get into this biz full-time. I hated it and I never did do CPA work.

Now that I have disclosed my incompetance, I believe people get imputed interest wrong. My recollection from 1978 when I took tax, is that imputed interest is a RECHARACTERIZATION of the same dollars. Not a tax on dollars never received. (And especially not a deduction for $$ never paid.) For example, if you sold a property for big bucks, seller financed it at a below market interest rate, you are playing games with the numbers, in order to get the same payment, with a bigger principal amount. (In other words, if the seller pays off early, he has to pay the larger principal amount.) The IRS may say no, you may not take that huge capital gains credit and charge miniscule interest. Your cap gains is much less because you really sold it for less since everybody knows you should be charging more interest. And guess what–you have interest income for a much larger amount. And we IRS guys really like that because interest income is ordinary income.

I seriously doubt the IRS is going to care a whole lot about imputing interest on a below market interest rate on a puny little mobile home deal, given the difference in real $$ between cap gains tax and ordinary income. but like I said, I haven’t called myself an accoutant in many years.

Enjoy your posts. I just happen to think you are mistaken. Maybe there is a real accountant out there who knows.

good point - Posted by Steve-WA

Posted by Steve-WA on August 14, 2003 at 11:25:21:

it all depends on one’s exit strategy, or what margin you want to build.

For me, I want cashflow, and a 0% will give it to me. If I want to cash out, I will sell lower, or increase interest to make the note marketable.

I am not throwing this idea out as a catch-all be-all, but an alternative in marketing to 55+ a little more successfully. The generalization is that seniors are more likely to pay cash anyway, but that narrows the buyer target even MORE, so I’m just trying to widen my target.

That’s also why we eat Big Macs - to widen our target!

Re: More on 0% - Posted by firefox

Posted by firefox on August 14, 2003 at 18:27:13:

Are you over 55 yourself? If not, how are you buying and selling in over 55 parks?

Bingo! - Posted by Steve-WA

Posted by Steve-WA on August 13, 2003 at 21:48:22:

thanks Greg! That’s the kind of case study I need to support my theory! Gotta wait a week for my ad to run, but we’ll see . . .

Doesn’t matter does it? - Posted by Ben_WA

Posted by Ben_WA on August 14, 2003 at 12:04:44:

As long as you discount the sale price of the note interest doesn’t matter does it. Suppose your total payments are $200 x 36 months which equals $7200 all you have to do is sell that stream for like $5000 now and everyone would be happy. The note buyer isn’t looking for interest as much as he is looking for the yield of the deal. Well just my thoughts.

Sincerely, Ben_WA