Seller Financing Commercial Property – Commercial Real Estate Owner Financing Basics:

Because of the continuing difficulties that many buyers are having finding financing, Seller Financing Commercial Real Estate is becoming an increasingly popular option. While many seller financed commercial real estate transactions involve residential property, either for primary residences or investment property, seller financing is also an option that many commercial investors are using. These transactions have more flexibility because a bank’s rigid rules regarding maturity dates, interest rates and other matters don’t apply. Also, because a lending institution is not a part of the deal, seller financed transactions tend to move to closing more quickly. This article discusses the elements of a seller financed deal that are more applicable to owner financed commercial property for sale.

Owner Financing Commercial Real Estate

Why would a commercial property owner be willing to seller finance commercial properties?

Just as with a residence, commercial properties also have owners who need to get rid of those properties for a number of reasons. The owners may need capital for a different venture, may need to pay off an existing debt but cannot get the financing they need for that deal, or they may simply want to liquidate their holdings. In any of these situations, if you are looking to invest in commercial real estate, you can create a win-win situation by finding a reasonable deal for a property with a motivated seller, and you might never have to deal with a bank for it.

How do seller financed mortgages work with a owner financing commercial property for sale?

Amansad Financial has helped many clients put together seller financed mortgages for commercial properties. However, we also recommend that you consult an attorney and a tax professional to ensure that your own situation resolves correctly. In many situations, the individual business owners who are buying the property will also issue a personal guaranty on the loan to give the seller greater peace of mind. In general terms, though, these deals normally take on one of three structures: the buyer and seller sign a traditional contract for a land sale; the seller extends a mezzanine loan that is secured with interest in ownership within the business making the purchase; or the seller receives a lien on the property. The risk is greatest with the interest in the business, because if the business does not have the money to pay the note and it goes into default, that interest in ownership is not likely to be worth much to the seller.

Commercial real estate owner financing options

If you’re looking at this from a seller’s perspective, the most significant risk is dealing with a buyer who is not worthy of credit or who does not deal with you in an honest way. Amansad Financial can help you by analyzing the buyer’s current credit report and making a recommendation as to his current financial status. To gain further insight into the buyer, it is acceptable to ask for a list of references from the business, such as the owner of the last location where that business operated. If the buyer’s business was regularly late on their rent with their prior office space, you may want to consider whether another buyer would be better for your situation. Amansad Financial has connections with many buyers who are looking to use owner financing to help them take that next big step with their business by moving into expanded office space, which gives you some flexibility with regard to whom you choose as a borrower.

Ultimately, you will likely want to handle your own due diligence as well as having Amansad Financial help you with the screening. Ask for tax returns, financial statements and the credit history of the buyer. If the buyer is hesitant about giving you any of this information, or about giving you references, it’s time to move on to the next potential buyer. It is important to understand how the buyer handles his business affairs so that you know whether this will be a positive business relationship for you. This will help you make an informed choice as to whether or not the buyer will follow the terms of the deal.

To learn more about commercial real estate financing options, either as a buyer or seller, give one of our financing specialists at Amansad Financial a call today. We have helped many other sellers and buyers find a deal that worked well for them, and we look forward to working for you as well.