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Downpayment
. . .
What
Is It and How Much Do You
Need?
A.
You need access
to at least $150,000.
Why so much?
Because, you are
actually buying 3 things:
1.
Recreational land.
2.
A business.
3.
A home.
This 3 in 1 package
requires more cash up front
than if you were buying
only 1 of the 3 components.
Also, you will need back-up
cash for closing costs,
immediate improvements (if
necessary) and operating
capital.
We don't want
anyone to buy a park and
lose their life savings, so
don't give all your money
to a seller for
downpayment.
Be sure to keep some
back.
B. The typical downpayment
amount for campground/RV park sales is 25% to 30% of the sales price.
An easy
rule of thumb you can use to determine what you can afford is to take
your downpayment amount and times it by 3 (30%) and then by 4 (25%). For
example, if you have $175,000 available for downpayment you could afford
a park with a sales price in the $525,000 range up to $700,000.
You could NOT afford a park priced at $1 million dollars. That
would require a downpayment of $225,000 up to $300,000.
C.
Downpayment is
not money you borrow
from a bank.
In our 30+ years of
brokering campgrounds with over 300 sales we
have found that banks will
not loan money to buyers
for their downpayment.
This is all
explained in our guidebook
for campground buyers
entitled, "Getting Your
Banker to Say 'Yes' to
Your Request." For many
of you, selling your home
is where a majority of your downpayment money will come
from.
But, be advised that
campground owners are not
going to take their park
off the market and wait
while you try to sell your
home.
D.
Other assets do
count. The equity
in your various real estate
holdings, stocks, bonds,
and retirement accounts can
be converted to cash for
downpayment if and when you
choose.
When you first start
looking for a campground to
buy, you should consider
the equity in your home and
other assets as part of the
amount you have available
for downpayment.
Prior to signing a
contract, however, you will
need to have begun the
process of converting these
other assets to cash (you
won't be handing over
your home, RV, or other
assets to the campground
owner at the closing
table).
But, be aware that most RV park owners will not take their park off
the market while you try to sell your home. We often have
buyers think they will enter into a contract on a campground that
includes a contingency for the sale of their home. Our experience
shows that Sellers will not accept a contract with that contingency.
They don't know your area, your neighborhood, if the price you are
asking is reasonable, whether you have it listed with an aggressive
broker, etc. Once they have accepted a proposal their park is
basically off the market. This is because they will have to
disclose there is a contract in place with a contingency, and since most
buyers don't purchase a park in their local area, buyers decide not to
take time off work and incur the expense of traveling to another part of
the country to see a park that already has a contract on it. Our
advice is: either sell your home or at least have a contract for
the sale of your home, or get a line of credit in place to pull out your
equity before you make a proposal on an RV park. This will greatly
increase your odds of an accepted offer with the Seller.
E.
No downpayment
money
=
No opportunity:
Unfortunately
for some of you, the
sizeable downpayment
required will eliminate the
opportunity for you to
purchase a campground -- even though you are
sincere, hardworking, have
good credit and are willing
to commit all you have.
Don't give up your
dream of owning your own
business.
If you're
committed to the idea of a
campground, continue to
work and save.
Otherwise, purchase
a different type of
business opportunity that
doesn't require as much
up front cash.
Consider one where
you just purchase
the business rather than
land, a home and a
business.
One example is to
buy a store in a shopping
center where you lease your
space, rather than
purchasing the real estate.
Your downpayment
will be much less.
F. What about
partners, rich relatives or
financial backers?
We often have buyers
tell us that they have
friends, relatives, or a
financial backer who has
agreed to put up the money.
But, in our 30+ years
of brokering campgrounds,
there has only been one
time when a rich aunt
actually loaned money to
the buyer.
Most of the time
financial backers back
out. Therefore, we
suggest you get a written
commitment from your
financial backer indicating
he trusts you to make the
final buying decision and
agrees to loan (or gift)
you $
at %
interest to be paid
back
how?
. If the backer
has to approve your
decision, he is not a
backer, he's a partner,
and that will limit your
negotiations with a seller.
Once you have this written
financial agreement, then
you and the campground
owner know that you have
the financial capability to
actually purchase the park
and you can proceed with
confidence and negotiate
from a position of strength
rather than weakness.
G.
But wait,
there's more ...
1.
What about your
local banker who says
he will loan you money
since you have great
credit?
Of course, your banker will
tell you he'd like to
loan you money.
That's his job. But when he
finds out you are quitting
your job, selling your home
and moving to another state
to buy a business you have
no experience in operating,
watch him back away.
He'll probably
tell you the bank doesn't
make out of state loans.
If it's a
nationwide bank, he'll
tell you to work with a
branch in the community
where the campground is
located.
This means you will
have to start over with a
new banker and probably
work through their
commercial loan department.
Most larger banks
have regional commercial
loan centers that cover a
couple of states.
It will all be done
long distance.
If this is the case,
realize the banker you
shake hands with will
probably have little to no
affect on whether or not
you get the loan.
Simply put, the bank
won't loan money for
downpayment, in fact this
may be the first campground
loan they've done.
The normal
downpayment range for
campgrounds is from 25% to
30% of the sales price.
2.
What about SBA
(Small Business
Administration)?
First of all, you
need to understand that SBA
is a guarantee program for
the bank.
They guarantee up to
75% - 85% of the loan to
the bank.
You still deal with
a local bank and the local
bank makes the loan.
Contrary to what you
might think, the interest
rate is not low -- it can
go as high as 2.75% above
the prime rate plus up to 3
points in origination
fees.
Both SBA and the
bank will require you to be
financially strong and will
collateralize everything
(all your assets, not just
the campground).
SBA is used when the
bank is interested, but
hesitant to make the loan.
In that case, the
bank will require an SBA
guarantee.
The up front costs
to you will be much higher
than if you deal only with
the bank.
And, SBA will not
loan money for your
downpayment.
We've had many
campground owners and
buyers share their
frustrations in trying to
get an SBA loan.
Check out SBA for
yourself at www.sbaonline.sba.gov.
3.
What about the
seller taking less
downpayment?
We spend a lot
of time educating sellers
on how to get their
downpayment as low as
possible because the lower
the downpayment, the more
buyers. So it's to the
sellers' advantage to get
the downpayment as low as
possible.
Yet, they still need
25-32% of the sales price
in order to pay off any
outstanding loans, pay
their costs of selling
(closing costs), buy a new
home, and pay their state
and federal taxes, which
are usually significant.
For example, one
campground owners'
accountant told them to
expect to pay $100,000+ in
taxes upon the sale of
their $800,000 campground.
They're asking for
$200,000 downpayment -- you can see that they
won't walk away with much
cash after paying all their
expenses.
Obviously this will
vary for each campground
depending on the
circumstances, but this is
one of the main reasons
downpayment runs in the
25-32% range.
4.
What about a
lease/purchase? Remember
there are 3 parts to a
campground business: the
land, the business and a
place to live (be it house,
mobile home or apartment).
Could you lease a
campground for less cash up
front?
Usually not -- the
sellers are always fearful
you will ruin the business
and let the park fall into
disrepair and they will
have to take it back at the
end of the lease, fix
everything you broke and
start over again building
up the business you drove
off.
Less money up front
doesn't excite campground
owners.
5. What
about talking to banks in
the area when you visit the
campground?
We don't recommend
buyers contact the bank
until after they've seen
the campground and have a
signed contract.
Why?
First, this is a breach of
confidentiality.
Sellers do not want
the local community to know
their park is for sale and
this includes banking
personnel.
Word travels fast in
a small town and this could
affect the campground
owners' banking
relationship if the banker
knows they are trying to
sell their park.
Secondly, banks are in the
business of loaning money. They will be
receptive to all initial
inquiries, but can't make
any decision about actually
making the loan until they
have at least 4 key items
- your personal
financial statement, the
financial statements of the
campground, your business
plan and, most importantly,
the sales contract with
price, terms and mortgage
amount.
The bankers can't
tell you anything until
they have all the facts,
except that, of course,
they are interested -- after all, that's the
business they're in.
We've helped buyers
obtain bank loans over the years we've been in
this industry and have
written a guide book that
outlines a simple, yet
highly effective, strategy
for successfully getting a
bank loan.
It's been our
experience that it's
generally not to the
buyers' advantage to go
to the banks until they are
fully prepared with all
the necessary information.
One final comment on
visiting the bank before
you have a signed contract -- realize that 40 or more
buyers could look at a park
before the right buyer
comes along.
Neither the seller
nor the banker want to have
40+ people coming to the
bank just to ask "what
if" questions.
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