Posted by BamaRoy on October 18, 2005 at 22:22:53:
I am brokering a small apartment complex deal right now. The purchaser requested the Seller to carry 10% of the sales price. This is allowing her to leverage the entire deal. It is done every day, and there is no reason you can’t do it as well. As to your search of a lender. You may want to consider a community bank. Good Luck!!
How do I get the seller to carry a loan? - Posted by David Kopp
Posted by David Kopp on October 18, 2005 at 15:47:41:
I am interested in purchasing a building that gets enough rent to cover the morgage,even if i morgage out the whole cost. However, I doubt the bank will give me a mortgage for the whole thing. This is my first deal and I dont want to screw it up, however I also don’t want to pass it up. Where is the best place to get a commercial mortgage and, if I can’t get one to cover the whole thing, what is the best way to get the seller to carry a loan? He already said he would consider it, but not a huge one. I have limited funds of my own to pull this off. Thanks for any advice you can offer me. Dave Kopp
Re: How do I get the seller to carry a loan? - Posted by Frank Chin
Posted by Frank Chin on October 19, 2005 at 08:24:21:
Dave:
You won’t get a bank to do a commercial loan for 100%. Banks want the buyer to take take some risk, so the buyer would lose something if they walk away.
My wife was a banker once, did loans on commercial real estate, and is frequently asked for 100% loans. She tells me her answer to these folks are “if we got the money to buy the WHOLE place, why don’t we just be the owners ourselves”. If the borrower says “you don’t want to be a landlord, do you”?? Her answer would be “it won’t be the first time we’ll be landlords”!!
As to the seller, how motivated is he?? How old is he?? How hard is the place to sell?? Is he a younger guy taking money off the table for his next deal??
As to the buyer, i.e. YOU, what experience do you have, and what resources do you have if something goes wrong?? Would there be a BIG problem if the tenant is 3 months late?? That’s what I would wonder about being a lender.
Reason why I’m asking this is my dad has a small commercial property, which he owned since 1963, and thought of selling the place from time to time, and some buyers ask about “seller financing”.
Now, he’s in his 80’s, and his reason for selling might just be he just doesn’t feel up to chasing for the rent checks, and just have all money in the bank. So is he going to start chasing the buyer of the property for the note payment and hear “sorry, I can’t pay you because the tenants are late on the rent”?? In that case, wouldn’t it simpler for him to chase for the rent himself??
He’s chatted with me about this from time to time, and and I’m NOT up to chasing for note payments. If it were rent checks, I wouldn’t mine so much as the place might be mine someday.
If you ask for seller financing, some older folks may be concerned with the length of the loan, so you can offer to do it with a five year balloon.
Now, the biggest concern for old folks that owned properties for years and years is the “capital gains tax”. In that case, its not uncommon to just structure a “triple net leasing”, with an option to buy down the road. You pay little going in, and he doesn’t pay taxes, and most importantly, his name is still on the deed.
Remember, the variables for every deal is different, and you’ll have to figure out what makes the seller, and the lender, TICK.
Frank Chin