Do sellers carry paper on purpose? Actually, yes, they do. About 5 years ago I bought a small commercial property from an older couple who were ready to retire. They had purchased the building for their travel agency 27 years previously, and they had paid off the mortgage knowing that eventually, carrying paper would be a significant part of their retirement income. In fact, they paid off their commercial building before they paid off their house!
Well, this was lucky for me, because I would have had a hard time qualifying for a commercial loan. As it worked out, the sellers accepted 15% down and carried at 3.75% for 18 months, and 7.5% after that, which is where it’s at now. The building carries itself.
The timing was good for both of us. They were having a hard time selling because there was a moratorium on new business licenses at the time. For over 10 months, no one knew what type of businesses would be permitted in that space.
And they got to defer capital gains and have their money working for them at rates that were a whole lot higher than any bank CDs at the time. So it really was a win-win all around.
A lot of times I run into distrust of seller financing amongst real estate professionals, at least in my part of town, and I’m not really sure why. There seems to be a general perception that only desperate sellers carry paper, and sometimes that’s true, but a lot of people use the installment sale as a financial planning tool. And it can be such a great technique to get transactions closed, especially in a market where even great buyers have a hard time getting loans.
I like the idea of embracing ideas that give us more tools for closing transactions regardless of market conditions. One of the most satisfying things is teaching weary landlords how to convert their labor intensive real estate assets into relatively hassle-free paper assets. It’s fun showing sellers how to get top dollar by offering terms. You just have to set the transaction up right.
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