Commercial Real Estate: The Pros of Seller Financing for Owners
What are the advantages of providing seller financing for commercial property owners?
There are a lot of changes happening in the US real estate market and economy this year. Some may make offering owner financing even more attractive. We could see a new push in more commercial property owners offering seller financing.
Factors Impacting the Market in 2017
- A sizable number of commercial real estate loans coming due
- Global competition for commercial capital
- Higher interest rates
- Anticipated regulatory changes and attempt to repeal Dodd-Frank
- Businesses in expansion mode
The Benefits of Seller Financing in Commercial Real Estate
In one of our previous posts we covered 9 Benefits of Owner Financing for Buyers of Commercial Real Estate. However, there are just as many reasons for owners to offer this type of financing as well.
As we approach 2017 tax filing deadlines some owners are even more aware of the need to minimize tax liabilities. A seller financing arrangement could help minimize any income that needs to be reported for the next few years, while creating time to offset any capital gains with additional write-offs. Some will use this strategy to prevent a big capital gains tax hit, and defer any taxation until years where no tax will be due, or owners fall into lower tax brackets.
For those eager to sell commercial assets to restructure businesses or portfolios, seller financing can aid in speeding up a sale, and maximizing sales prices, and net proceeds. Offering financing can substantially broaden the pool of potential buyers, help gain more visibility, and provides the seller more negotiating power on terms and price.
The investment aspect cannot be ignored either. The creation of a seller financed mortgage note creates a new passive income stream, and becomes a new asset. These notes can be held for cash flow, and are highly flexible financing instruments. Notes can be sold off for lump sum payoffs later, or partial notes can be sold as note holders desire more capital or passive income. It may also enable investors to cash out on physical assets at high values, and then maintain appealing yields, without the cost, time, and risk burden of finding new brick and mortar properties to invest in.
Will you offer seller financing this year?