Thoughts on owner financing as the seller

[Justin W.]

I was approached by the renter of a commercial property I own about my willingness to sell the property.  It's a nice commercial building that I bought for $80,000. I put about $40,000 in it.  I was originally going to use it as a business venture and when I decided not to do that I kept it as an investment property.  She's renting it from me for $1650 a month currently with 2 years left on the lease.  I told her it's not "for sale" but that I would sell anything for the right price.  I shot a number out of $290,000 and she didn't freak out.  The one catch is that she would only be interested in owner financing.  Curious what people think about doing deals that way and whether it would be worth it.  She indicated 5% down would be the best she could do.  To me that would indicate I need a higher interest rate but I don't have a good gut feel for whether owner financing something is a good strategy.  Any general thoughts?

[Corey Westermann]

At least from my experience in residential properties, I think seller financing can be just as valuable for the seller as for the buyer.  As the seller, you can get a big chunk of cash up front, monthly cash flow, high interest, and none of the work of a landlord. 

Here's a few thoughts off the top of my head regarding your specific situation...

Why can't your buyer get traditional financing and does that make her a risky borrower? I'd dig deep into the reasons behind her being unable to get a relatively small commercial loan.

I'd push for more than 5% down... On a $290k loan, I would want my buyer to have more skin in the game than $15k.

What would the tax implications be if she refinances or pays off the loan early? Depending on the terms it's probably a safe bet that she's going to make every effort to find cheaper money and pay you off as soon as she can. Unless there's something in the terms that prohibits her from doing so, there could be some significant tax implications when you get a $290k check that you weren't necessarily expecting.