30 Unit Hotel: Private Lender + Seller Financing

21 Replies

Hi all,

I'm exploring an opportunity to by a hotel that my wife and I would live in.  My parents owned a similar property, I had helped run it throughout growing up.  I'm involved in the hotel industry career-wise as well.

I've been focused on multi-families for quite some time, but I'm really leaning on starting a hotel with my wife (we'd live in the house on the premises).  The sellers are retiring and are willing to do seller financing; however, they have plenty of money (150k) left on their current mortgage which they'd need paid off upon sale.

If the whole purchase price (350k) could be seller financed they'd do it, but they need that current mortgage paid off.  Has anyone run into a scenario of using private lenders to front the cash for the down-payment in conjunction with seller financing for a commercial property such as this?

Lots of information I'm not giving here: RevPar, occupancy, taxes, 30 units, location, seasonality, etc but I'd like to see about the financing viability first as a possibility if the numbers look good.


I'm not 100% sure - but look into wrap around mortgage. Essentially, it means - you pay the owner which in turn he pays his existing $150k mortgage. I've heard of this before in the hotel industry. Not sure how they could pay off their mortgage upon sale as your down payment might be lower than $150k.

I'm also in the hotel industry (30 unit motel near Minneapolis) so if you need any advice or questions, I'f be happy to help.


You take the risk of it being called, but you can purchase subject to on an owner finance.  You would need to make sure that you take care of the note and an additional payment to them for their equity.  Another option is to borrow the enough to buyout the first note on a new loan, and then sign a personal loan to owners, (note:  if i was the seller, I would not agree to this, because all I have is your signature for collateral).  I am not sure of your relationship with owners, but you do need to make sure that you can make them whole.  

There are many options to buy.  I call this one a refi-purchase with partnert buy out. One would be to register as a partner with the owner(s) if it is a corporation.  You then refinance as a partner buy out.  Owners must agree to this scenario, the actual mortgage for $150,000 will be paid off and you will assume the mortgage being refinance. No need for owner finance.

@Ben Ertl Banks that finance commercial properties like this are much more willing to allow this sort of transaction without the loan being paid off.  I'd have the sellers ask for the permission to sell it to you with owner financing without the need for paying them off and see what the bank says.  If the bank says no, I'd ask a follow-up question "Are there any circumstances under which you would allow us to do this transaction without paying you off?"  Are you able to put any money down on the current loan which would further lower the lender's risk?

@Tim Swierczek @Miguel Planas  WOW, these ideas are very creative and I would've never thought to do either of these ideas.  Even simply asking the seller to talk to the bank and see if the due on sale clause can be avoided with more down payment or another scenario.

The partnership idea seems like I'd have to do a lot more research before presenting that idea. I don't want to scare these folks off. I think the property is under personal ownership of the couple, not an LLC or corporation.

I recently purchased an 8 unit with a combination of hard money lending and owner financing. I gave the seller a 15% down payment, transferred her hard money loan into my name (really just restarted the loan in my name,) and don’t have to give the seller any more money for 3 years so that I can cash flow. 

@Eric Mayer Did you use the hard money for the down payment only after it was in your name?  If so, how did you go about putting that hard money in your name?

Did you personally know the seller to get a good deal on 3 years of no payments?

@Ben Ertl I should have been more clear. The 15% down was my own personal money that I gave the seller. 

I didn’t know the seller, but knew they were very motivated. I knew it was very risky for the seller to not hold the note so I offered full ask and used 2 of my other properties as collateral (Just the equity I have in them. She would get no properties if I foreclosure. Told her $50k each.) I told them I needed to not make any additional payments to the seller for 3 years if they want the deal to work. 

This was all on a conference call with the owner and a well known podcaster who happened to be her RE agent. I tried to use my Corvette and a diamond as collateral instead of the properties since that would cost me less. Was some fun negotiating. I love that stuff.

@Ben Ertl Thank you. It was one of my prouder moments. I would never personally owner finance a property to someone and not hold the note, but she was willing to risk it because of my track record and the potentially larger payday. We simply put a value of $50k each property in the contract. It wasn’t based on any percentages or anything. Just what I told them I had in the conference call. 

@Eric Mayer Makes sense, thanks again.  I'm balancing two sides.  

1) Creative financing and maneuvering to get a larger property with a lot of potential (i.e. many units, owners don't do online bookings at all, positive Google reviews already (43 at 4.5 avg), etc).

2) Being more conservative and continue the residential, multi-family investing that I'm more familiar with and is obviously less expensive upfront.

The lifestyle change with a hotel is something that we would welcome as an adventure - my wife and I are both 26 and have very little overall debt vs income.

Being conservative isn't a bad strategy.  You just always hear the people who made a name for themselves get started with some awesome deal that took a lot of creativity / forced appreciation / etc.

Just keep in mind that the Lender want to be in 1st Position. You can always have a 2nd (Lender in Place) if there is enough equity to lower your down payment. If the hotel is doing great financially (Repayment Ability) there is even No Financials from the buyer except proof of funds for down payment and acceptable credit. In your scenario already have experience so that is covered. Sounds like a great opportunity

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Here's a better way to structure the deal since they are willing to owner finance - SBA can fund up to 90% of the PP for 25yrs low interest as long as the property DSCR is 1.25 - use your funds or seller concessions for the down payment needed

@Oliver Carey

I agree with Oliver. SBA would be a great option. I’ve worked on similar situations as an SBA lender.

SBA 7a loans can be closed in 30 days with the right lender. It all depends on who you choose to work with. I’d try LiveOak Bank or Ready Capital for something like this.

Something to watch for with some SBA shops is some avoid rural areas and independent hotels.

Another thing about SBA in general is make sure you work with a “PLP” lender. Just ask them and if they don’t know they are one walk away.

@Account Closed The hotel is definitely not in an urban town but it's not completely out there in the wilderness either.  An SBA loan to cover 90% (give or take) would be ideal combined with the seller financing if that is even needed.

I wonder if you could do an SBA for whatever the owners still owe on the mortgage and then have them finance the rest so that you'd be paying very little to actually buy the place.

@Ben Ertl

The structure would differ from SBA lender to lender. I think you could get structure in a few ways that would be beneficial to yourself and the seller.

Some SBA Lenders can structure up to 100% LTV (I know its crazy and I'm not sure how they pull it off, looking at you LiveOak). Most likely you would have to come in with 5% Down. Especially since this is a hospitality project which would be considered a special use property.

One issue with Seller Financing on SBA loans is the seller financing must be on full standby for the life of the loan in most cases. The seller financing must not exceed half of the required equity injection. Typically we see: 5% Down payment + 5% seller financing + 90% LTV. It really depends on the seller if they would be willing for such an arrangement.

You could (and I don't suggest this) use borrowed money (hear me out) for your portion of the down payment ONLY IF you are able to pay that borrowed money with outside income. I am working on a business acquisition with real estate and the $200,000 down payment is completely borrowed and being payed down with outside capital (the purchaser is a doctor). This is a very rare, very risky, and highly frowned upon method, but hey, its possible.  (spouses income can count as outside income for paying down borrowed equity injection) 

@Account Closed Thank you very much for spending time helping me.  5% down with perhaps 5% seller financed would not be a big deal (at least not for me).

I'll reach out to LiveOak and see what they say - they might not cover my area in WI but either way I'm sure the conversation will yield some value.

The owners are looking to retire (although apparently aren't in a rush) so you'd think they'd be perfectly willing to do a measly 5% seller financed to find a buyer in an area that is not a "hot market".

@Ben Ertl  Happy to help Ben!

If you'd like a good contact at LiveOak just send me a message. My old boss who taught me everything I know in SBA is working as a nationwide lender at LiveOak. He is specializing in business acquisitions and real estate so I think he'd be a perfect fit for your scenario. If he can't do it I also got a few others guys I think would be happy to take a look.

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