usury laws - Posted by Luke

Posted by PatP(NC) on February 01, 2005 at 12:48:58:

Cangratulations Nathan !!!

usury laws - Posted by Luke

Posted by Luke on January 31, 2005 at 21:21:03:

In providing owner financing with mobile homes, am I bound by usury laws of the state I am in. The way I understand it in MN here you can only charge 8% unless you go through the hoops of becoming licensed lender.

Usury laws vary state to state nt - Posted by John Merchant

Posted by John Merchant on February 01, 2005 at 19:08:38:


Fear Not - Posted by Tony Colella

Posted by Tony Colella on February 01, 2005 at 05:51:21:


It is important to remember how a Lonnie deal works. You are selling affordable payments, and your money is made in the spread between the cost to buy and market vs. what you sell the home for.

Interest is an illusion in these deals. No more money is made or lost through interest on these deals.

Interest is simply one factor in computing the time value of money, yield and profit on these deals.

For example, the only number we may not be able to change is how much the buyer can afford to pay us each month. Let’s say that figure is $250 per month.

If we sell the home with $500 down and $250 per month for 3 years, we still only receive that amount no matter how we break it down (be it interest or principle payment).

When the payments remain fixed:

The higher the interest rate, the more money we call interest income and the lower the final selling price.

The lower the interest rate, the less we call interest income and the higher the selling price.

What’s the reality?

We still get $500 down and $250 per month for 3 years.

If you can only charge 8%, ok. No money lost. If anything … turn a negative into a positive and advertise it!

“For Sale, Will Finance… 8% interest with $1,000 down!” (using that low rate to entice larger down payments is a nice touch I think).

Fear not Luke, your profit is safe whether we call it interest income or not. Just keep telling yourself … $250 per month for 3 years either way.


Re: Fear Not - Posted by Nathan

Posted by Nathan on February 01, 2005 at 10:55:08:

OK Tony, I dont have a degree in Economics but I did take a year of paralegal. But could you explain this post? You confused the h**l out of me. Sorry.

Re: Fear Not - Posted by PatP(NC)

Posted by PatP(NC) on February 01, 2005 at 07:44:46:


I was wondering about this the other day. Is there any advantage to just advertising 0% interest with payments of $250 a month for 3 years? Outcome is the same either way.

Sure - Posted by Tony Colella

Posted by Tony Colella on February 01, 2005 at 15:33:30:

No degree necessary. Simple math.

In most cases, the Lonnie technique attacks the need for affordable housing. Most of the buyer’s live hand to mouth. Thus, “affordable” boils down to ?affordable monthly payments.?

Let?s say that they buyer can afford to pay $250 per month for 3 years (36 payments) to purchase the mobile home for us.

36 x $250 = $9,000

That?s $9,000 that we collect in total payment.

If zero interest were used, then the selling price would be $9,000. (This does not mean that I am suggesting or favoring zero interest deals. That is another discussion).

If we add in an interest rate, then part of the payment goes to interest and part goes to pay down the principle balance of the loan.

When we charge interest, without adding more payments, we are simply dividing the same $9,000 up into 2 parts ? part now gets called interest income and the remainder pays down the balance.

Because part goes to pay us interest, the sales price drops? but we still receive the same 36 payments of $250 ? thus we still receive the same $9,000. Charging interest did not add any profit to this deal.

Remember, we are not actually loaning the cash, we are making money by buying low and selling high while offering financing. We will not receive $9,000 PLUS interest… we will only receive $9,000.

Summary, $9,000 is $9,000 no matter how you decide to divide it or rename it.

So if your state only allows 8% interest rate, it matters not. We don?t make money on interest (only those who loan the actual cash make money on interest). We make the money on the spread and agree to accept that profit over time through a series of 36 payments of $250 (in this example).


Ps. Before anyone asks, the 0% interest question has several pro?s and con?s in my opinion.

Pro ? Great for advertising. Makes us look like the best deal in town.

Con ? The IRS might impute an interest rate and ask us to pay taxes on interest income we never received. Also I believe that the typical Lonnie buyer is used to paying outrageous interest rates because of poor financial decisions in their past. That is why few if any ever ask what the interest rate is. I bet I had no more than 3 ever ask what the rate was. Each one received a copy of my note and full disclosure of the truth in lending information but still never questioned the 12.75% rate. My belief is that you give people a little more than they expect but if you go too far with it (such as 0%) then you may get them asking ?why is he so motivated to get rid of this home??

here we go again! - Posted by Steve-WA

Posted by Steve-WA on February 01, 2005 at 10:58:48:

The 0% interest debate is one of the most interesting recurring topics every year:

Re: Sure - Posted by Nathan

Posted by Nathan on February 02, 2005 at 18:47:42:

Thanks Tony, makes since now. I didnt realize that interest could be used as another sales tool. Nice idea.
You can ajust your interest rates to whatever mood your customer is in that day.

Re: here we go again! - Posted by Nathan

Posted by Nathan on February 01, 2005 at 11:48:41:

Thanks Steve, good posts. By the way I sold my first MH last night, I dont if anybody has beat me in the newbie contest, if not somebody owes me some cookies.(:>) I will have to try the 0% interest thing. Oh, yah, big macs are making me fat. Jarad says try Subway.

Nathan, in SW MO… - Posted by Philip

Posted by Philip on February 04, 2005 at 09:06:39:

many people know how lonnie deals work because it is the only housing they have ever had…but they still know that the loan is so short that almost nothing is paid to interest.

If you are having trouble with documents, simple closings, understanding the transaction, wording, etc…call me.

If you are projecting control when closing or selling then most people won’t object to anything under 14% -15%.

I often times say 12.75%…and then only charge them 11.75% and they are really happy…because many of them pay much higher rates for everything they purchase!


details? - Posted by Steve-WA

Posted by Steve-WA on February 01, 2005 at 11:55:00:

buy price, repair costs, terms of note or cash sale? Wesa wanna know!

congrats - next one!

Re: details? - Posted by Nathan

Posted by Nathan on February 01, 2005 at 12:23:44:

OK, here goes. I bought this 14X80 1984 Liberty for $2,500 sitting in a nice park, with back patio and front porch, covered and small storage shed. It had 3 small holes in the floor, smaller than 16 inches square. fixed them in about 2-3 hours. I used good stuff too, that 50 year guarantee chip board, found the scraps in a dumpster. Sold it for $6,000, $ 600 down and they wanted to pay it off in 2 years, I pulled out my financial calculator told them what the monthly payments are and everybody is happy. cool huh?