Seller Financing for Commercial Real Estate: A Strategic Guide

Seller financing can accelerate property sales, command premium prices, and create long-term income streams for commercial property owners. At 17 Mile Real Estate, we’ve successfully structured seller financing deals that benefit both parties, particularly in specialized property transactions.

Real-World Success: Church Property Financing

We’ve provided seller financing to three congregations acquiring church buildings—properties that traditional lenders typically avoid. These transactions worked because:

• The buyers needed flexible financing terms unavailable through conventional banks
• The properties generated income from existing telecom leases
• Our conservative acquisition basis provided strong collateral protection
• We maintained the willingness to foreclose if necessary, unlike risk-averse traditional lenders, who are concerned with public perception

This strategic approach turned challenging-to-sell, specific-use properties into profitable, income-generating assets.

6 Essential Considerations for Seller Financing

1. Conduct Thorough Due Diligence

Underwrite the transaction as a bank would. Evaluate the buyer’s repayment capacity, business plan, and credit history; ensure your legal documentation is ironclad and enforceable should the buyer default.

2. Assess Your Liquidity Requirements

Seller financing typically yields higher total proceeds but delivers them over time through amortization. If you need immediate cash, a traditional sale at a lower price may better serve your financial needs.

3. Maintain Conservative Loan-to-Value Ratios

Buyers seeking seller financing often lack access to traditional credit, making them higher-risk borrowers. Protect yourself with conservative LTV ratios and secure a first lien position on the property with properly filed mortgage documents.

4. Require Comprehensive Insurance Coverage

Mandate adequate property insurance and ensure you are listed on the policy under the Mortgagee Clause (also known as a Loss Payee). This ensures you are notified of policy changes and receive claim payments for property damage, protecting your financial interest even though the owner remains the Named Insured. This clause is crucial for your security and gives you control over how insurance proceeds are applied to protect your collateral.

5. Actively Monitor the Asset

Regular oversight is critical. Watch for unpaid property taxes, mechanic’s liens, deferred maintenance, or property damage that could diminish collateral value or trigger a sheriff’s sale that might supersede your mortgage position.

6. Price Above Market Rates

Your seller financing should carry a premium over traditional bank rates. This compensates you for increased risk and the opportunity cost of capital. Stay informed about current commercial lending rates to price competitively yet profitably.

Is Seller Financing Right for Your Property?

Seller financing works best when you have:

• A property with strong collateral value relative to your basis
• Flexibility to receive payment over time rather than in a lump sum
• Willingness to actively manage the loan relationship
• A buyer who needs creative financing but demonstrates repayment ability

When structured thoughtfully with appropriate safeguards, seller financing transforms difficult sales into profitable, long-term investments.

Contact 17 Mile Real Estate to discuss whether seller financing could accelerate your commercial property sale while maximizing your returns.

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17 Mile Commercial Real Estate
Trusted Buyer. Proven Closer. Preferred Partner.