We are all hearing the news about commercial loans becoming a potential problem over the next few years and a direct result of over-leveraged lenders is a tightening of new and future loans. One of the best solutions may be Seller Financing.
Seller Financing offers excellent benefits to both the seller and the buyer. The buyer can typically close with fewer restrictions and regulations and can forgo long and costly bank-mandated appraisals, bank fees, underwriters, and inspections. Additionally, buyers may be able to afford more property with less upfront investment as the Loan to Value ratio required by the banks becomes stricter. Lastly buyers can overcome appraised value gaps with seller financing to pay for potential improvements or to allow them to obtain their ideal property in a competitive market. After the agreed term, the buyer can refinance and pay off the seller in full at a potentially lower interest rate or better term depending on market conditions and equity accrued.
The sellers get a lump sum downpayment and can schedule their desired monthly income, interest rate, and term of loan. This can be an excellent alternative to leasing as it pays upfront and then for a set period of time (can be as short as 6 months, up to 30 years), giving the seller a liquidity bump and steady income over the term. In the case of default, the seller gets the property back in addition to the downpayment and any loan payments. At the current time with interest rates high, Sellers may be able to get a higher return than the market rental rate for their property or a CAP rate of a 1031 exchange property and Seller Financing may allow a deferment of capital gains.
As we approach high interest rates and an uncertain lending market, talk to a commercial real estate expert about how Seller Financing may work for you. Contact Stark Accelerators at 775-825-4400 in Reno or 208-722-2400 in Boise.