How To Sell a Commercial Property that Can’t be Financed

[Don Konipol]

How To Sell a Commercial Property that Can’t be Financed

Some commercial real estate just can’t be financed. The property is vacant, needs extensive repair, or there may be environmental, location, or structural issues. These properties stay on the market for years, wasting broker’s, seller’s and buyer’s time and efforts.

When we obtain ownership of such a property, we find that we’re able to sell it rather quickly (usually 3 months or less), by offering owner financing. There’s plenty of buyers with 15-20% down if the seller will “carry paper”. Of three properties we sold with owner financing in the last two years, we received 20% down and all were structured as 20 year amortized loans with 7 years balloons. Two were at 7% interest, one was at 11%.

Many sellers won’t owner finance because want cash. These sellers may not realize that they can get the cash by selling the note created. While a large discount from principal balance would be required if they sold the note immediately, a much smaller discount would be required if the note “seasoned” for 12 months. If they need immediate cash, there are numerous note investors who will buy “partials”, i.e. they will buy say the first 2 years payments with the seller keeping the large majority of principal balance.