Is Seller Financing Doomed?

[Ken Rishel]

Lately we are hearing from a number of operators who are talking about throwing in the towel when it comes to their seller finance operations because of the ever increasing level of government regulations. The interesting observation is those proclaiming this position the loudest are often the ones who have done little or nothing in legalizing their lending operations, let alone worked to achieve compliance under state and federal law. In some ways they remind me of athletes with natural talent who are unwilling to put the work in to develop that talent, always complaining about how unfair the coach, or luck, has treated them when they have done little or nothing in the way of hard work to make their own luck.

No sane person could deny that our government seems to have lost their reason when it comes to the way they are regulating business in general and lending in particular. At the same time Dodd-Frank created the new super agency, the CFPB, it also jerked all lenders into a whirlpool of new rules and regulations so confusing that many regulatory agencies are having trouble keeping up. Do-it-yourselfers have found themselves out of their depth when trying to keep up with all the requirements. The truth is, many attorneys have found themselves having to admit they have no idea what is going on.

Does that mean it is time to give up because seller financing isn’t worth it anymore? Not if everything is observed objectively it doesn’t. Seller finance is extremely profitable; maybe more profitable than selling homes and renting lots put together. For all but a few retailers and communities, it isn’t even an option, it is a necessity for survival. If the seller finance operation is being run correctly, there is plenty of money to pay for compliance related efforts - including the outside help that is also a necessity.

Anyone who has the opportunity to borrow money at 5% and loan it out at 12% while making profits on both sales and lot rentals has a golden opportunity. Throwing it away because the government is out of control, or because it requires additional investment, or because it requires hard work, is sophistry at its worst, and makes the decision maker as unbalanced as the people pushing for and getting all these new regulations.