How I Approach Seller Financing on Self-Storage Deals

[Kevin Rapport]

Seller financing has been the single most important tool in building my storage portfolio. I own 12 facilities across 4 states and my best deals - both on price and terms - have all been seller-financed. Here's how I approach it.

Why sellers say yes.

Most people assume sellers want all cash at closing. Some do. But a surprising number of small facility owners are open to carrying the note because it solves real problems for them. Tax deferral is the biggest one - an installment sale spreads their capital gains over time instead of taking a massive hit in year one. Consistent monthly income in retirement is another. Many of these sellers are in their 60s and 70s and would rather have a predictable payment than a lump sum sitting in a savings account earning nothing.

How I bring it up.

I never lead a conversation with "will you seller finance?" That puts the seller on defense. Instead, I ask questions. "What are you planning to do after you sell?" "Are you concerned about the tax hit?" "Would it be helpful to have monthly passive income from this instead of a lump sum?" Let them arrive at the idea. Your job is to present it as a solution to their problem, not as a favor to you.

The terms I typically target.

Every deal is different, but my starting point is usually 10-20% down, 4-5% interest rate, 25-35 year amortization with a 7-10 year balloon. I'm flexible on the rate if I can get better terms elsewhere in the structure. Sometimes a higher rate with lower down payment is the better deal. Run the numbers both ways.

What to watch out for.

Get a proper promissory note and deed of trust drafted by an attorney. Don't shake hands on napkin terms. Make sure the seller has clear title and no existing liens that would complicate the carry. Also make sure the seller actually owns the property free and clear or has a lender who will allow a wrap or subordination - this trips up a lot of first-time buyers.

The 2 biggest advantages nobody talks about.

Speed. There's no bank committee, no SBA underwriting timeline, no 90-day closing process. I've closed seller-financed deals in 30 days. When a seller is motivated, speed is a competitive advantage that beats a higher offer every time.

No PG. Rarely will a seller require a Personal Guarantee. They know the facility, know it cash flows, and know it can cover the payment. In a worst case scenario, the last thing you want is to PG that loan. 

Happy to answer specific questions about structuring seller finance deals on storage facilities. Reach out anytime!