When you think of buying commercial real estate, you probably imagine a transaction that involves a bank or other similar institution. And while this is the most common arrangement, there are other alternatives, such as seller financing.
What Is Seller Financing?
Seller financing, also known as owner financing, is a real estate agreement where the seller of the property finances the sale, as opposed to a bank or another similar institution.
Let’s explore what this means and its ramifications.
In a typical commercial real estate transaction there are at least three parties directly involved: a seller, a buyer, and a bank that provides the financing.
However, in many cases, sellers and buyers can opt for seller financing. In a seller financing agreement, buyer and seller sign a promissory note that details the terms of the loan, including interest rate, amount of the down payment made by the buyer, and repayment period.
While this is an obviously useful tool when a buyer can’t secure conventional financing, there are many other reasons to choose seller financing, as we’ll see in the next section.
The Benefits of Seller Financing
If you are considering the purchase or sale of a commercial real estate property, seller financing is an option you should always keep on the table.
Some of the reasons why seller financing makes sense include:
- Faster than traditional financing
- Useful when a buyer doesn’t qualify for a conventional loan
- Save on closing costs and other fees
- It may help sellers sell their property faster
As with everything in real estate financing, seller financing has some caveats you need to be aware of.
If you are planning to enter a seller financing agreement, seek the assistance of a lawyer and an accountant to help you review the legal and tax implications of the deal.
You should also consider the possibility of a default, which would come with a potentially drawn-out legal process and expensive lawyer fees.
Disclaimer: This material is for general information and educational purposes only. It is not guaranteed as to accuracy, does not purport to be complete and is not intended to be used as a primary basis for investment decisions.
SoCal CRE Team: Commercial Real Estate in Southern California
At SoCal CRE Team, we specialize in finding commercial real estate solutions for developers, investors, landlords, and tenants in the most sought-after Southern California markets such as Los Angeles, Orange County, Riverside, Anaheim, and more.