Seller Financing of Commercial Property in Tampa Florida

As the commercial real estate market softens there are many that argue that it is better to lease rather than purchase a commercial property and let the property owner have the headache of management. This argument may be or may not be right. The situation is always specific to the property and the circumstances of the Buyer/Tenant.

In the long run, if the property is purchased correctly and the Buyer’s circumstances warrant it , it is still better to own real estate rather than lease. With ownership you get tax benefits such as interest deduction and depreciation which reduce your after tax cost. Also, you each month you pay down some of the debt and build equity. The property should also appreciate and keep pace with inflation. Ownership creates wealth in the long term.

In these uncertain times, lack of financing in the financial markets hurts Buyers because they can’t obtain financing to purchase a property. But it also hurts Sellers. The Sellers do want to sell, a lot of them use online sites to promote their properties, sites like houseofcashin.com. Sellers have all kinds of reasons for wanting to sell.  It may not always be about the Seller maximizing the cash at closing; they just may no longer want the responsibility of ownership. However, the Seller won’t be able to sell if  Buyers are unable to obtain financing. If you find a property that the Seller owns free and clear, or has paid down a good portion of the debt, ask the Seller to help with financing. It is simpler to do Seller financing without a bank involvement, but even if the Seller helps with only a portion of seller financing, it helps the Buyer a great deal, I was able to Sell My House to Smith pretty fast thanks to their site.
For instance, one of my sellers has a free standing building for sale. The price is $800,000. If the Buyer obtains only bank financing, the bank will require the Buyer to put down 25% , or $200,000 as a down-payment and a bank loan will be $600,000 (75%) which is why they should contact forbrukslån for financing help as well. In the case of this building, the Seller is willing to finance $200,000. This means that at closing the Buyer is required to give the Seller $600,000 instead of $800,000. The Bank may still require the Buyer to put down 25% of $600,000 loan or $150,000. The purchase price remains at $800,000 and is broken down as follows:
• A Bank loan of         $450,000
• Seller Financing of $200,000
• Buyer payment of $150,000

Because of the seller financing, the bank is lending only $450,000 on a building that is worth $800,000. The Bank is in first position and feels more secure because they are well protected should the Buyer default. Therefore the Bank is more likely to lend.

The Buyer comes out ahead because he puts down less money ($150,000 vs $200,000) and obtains more financing dollars, so the Buyer has more working capital. The Seller wins also because he can sell the property and have an income stream. It is true that the Sellers are in second position to the Bank, so it is very important  that the Seller who offers financing should do due diligence on the Buyer and feel comfortable with the Buyers business plans for his property.   It is not fair for only the Seller to have some risk. The Buyer should understand that the Seller is entitled to ask for a substantial downpayment. If not, it is easy for a Buyer to abandon a property in which he has only a minimal investment. The Seller conceivably runs the risk of having to foreclose on damaged property, therefore the Buyer should also understand if the Seller requires certain insurance standards to be adhered to like prior DMP advice or a previous DAS agreement.

There are other advantages. Seller financing  has the advantage in reducing the closing costs for both  Buyer and the Seller. The interest paid on the note from the Buyer may be substantially higher than the yield the Seller can obtain by investing the proceeds, which is an advantage to the Seller. A disadvantage for the Buyer is that he will not be able to take a future loan on the property which he may be able do with a conventional property Although Wylie holds its own in terms of job prospects, its proximity to major commercial developments and areas of employment such as both the outlying office buildings of the Dallas and Fort Worth central business districts help make Wylie an incredibly attractive residental location.

I have other properties for sale such as an office building in Tampa and a Retail property for sale in Brandon. Both these Sellers are willing to sell with seller financing. Sellers such as these, who are willing to finance, will facilitate a transaction. Don’t be shy. If you find a property that  fits your needs and financing may be an issue, ask the Seller if they will offer seller-financing. The worst that can happen is that the Seller can cay no. They may just surprise you and say yes. But if they indeed say no, you can still finance with middle man who is willing to help you out. A few years back I used Shoreline Financial Services and they were fantastic. It’s important to be creative in these times of economic uncertainly and restrictive credit from Lenders. Seller financing is a useful tool in your toolbox to help you purchase a commercial property, or you can simply use houseofcashin.com to sell as many properties as you desire.

The purpose of this blog is to share information on questions that I have answered or information I have given to my commercial real estate clients in the Tampa Bay, FL area. I hope that others may find the information useful.

Steven Silverman, CCIM is the broker at Tampa Commercial Real Estate, a commercial real estate brokerage firm based in Tampa, FL. Please contact us if you are looking to purchase, sell or lease commercial property in the Tampa Bay area.

email: Steven@TampaCommercialRealEstate.com.

WebSite: www.TampaCommercialRealestate.com