This seller is representative of many sellers of smaller and mid-sized commercial buildings these days:
I read with great interest the 10/3/08, Investor’s Business Daily article that featured your information on seller financing.
I personally own a lake front condo office in Stockton. I have it clear of any loans and lost 3 buyers because of huge finance loan fees quoted, so am now thinking quite seriously about your procedure with me, as Seller, carrying the loan.
Do you offer, for a fee, to setup the carry back situation including how the payments are made and to whom, etc.?
Tim’s buyers were scared off by the bank fees, but many can’t get decent loans at all. Or maybe they can get a 65% LTV at 11%, but not many buyers have a 35% down payment at the prices that most sellers are wanting for their properties today.
When Tim gets a chance to call me back, here’s a few basic guidelines that we’ll talk about when structuring a seller carry back transaction:
- Down payment – for commercial property, the standard is to try and get 25% down. Sometimes less is OK if there are other strengths in the deal
- Interest rate – sellers should shoot for 8, 9 or 10%, but to be competitive and support maximum price, sometimes sellers are carrying at 6 & 7%
- Term – amortize over the shortest possible time, over 15 or 20 years if the buyer can do it, and put in a 5-7 year balloon. If they can’t make the balloon payment at that point, at least you’ll have the opportunity of renegotiating increasingly favorable terms
- Credit score – you want a buyer with a decent credit score . . . not just to make your own investment more secure, but to have a reasonable chance of selling the note down the road
- Capital gains – Tim & I are going to talk about his strategies for deferring capital gains in concert with advice from his own CPA. Should he put in a stiff prepayment penalty? Should he put the property in a land trust for a 1031 exchange option down the road?
- Exit strategy – will he want to sell all or part of the note sooner? Later? How we structure the transaction will reflect his ultimate needs and objectives