Deal Structure/Analysis: Seller Financing Option vs Commercial Loan
Jeremy DuganPro Member
New to Real Estate · Springfield, MA · Member since 2024 · 8 posts · 14 votesDeal Structure/Analysis: Seller Financing Option vs Commercial Loan
Most Popular Reply
Jaycee GreenePro Member
Real Estate Consultant · St. Louis MSA · Member since 2024 · 3k+ posts · 727 votesQuote from @Jeremy Dugan:
Quote from @Jaycee Greene:
Quote from @Jeremy Dugan:
Good morning BP,
I am working with a potential off-market seller who wants to off-load their converted motel (8-units, 1 is the motel office that can be commercial space) as they retire. I've received their rent roles (4,760/mth) but believe that the market value is about $6,600 to $8,100/month. The Commercial Loan Officer I am working with comes up with a Loan Amount of $336,000 (Total value is $448,000) because of the low rents. I also have their expenses which are in line with my estimates/analysis.
I do not believe the Seller's will like that valuation and I know they are hiring an appraiser. Also, I believe they own this property out-right, no loans, etc.
I'd like to structure a deal where they provide seller's financing with a 2-3 year off-load timeline that gives them a) some cash now via a down payment and b) some regular monthly income all while I work to bring rents to market value and we both benefit on the sale and refi.
How would something like that work and what would it look like? Very much appreciate any advice or recommendations on how to approach this conversation/negotiation.
Hey @Jeremy Dugan, welcome to the BP Forum! Looks like you've already outlined most of the way something like that would work. One thing that I would add is your plan to refinance the property once the sellers note matures and that's when you'd pay them the rest of the purchase price through a cash out of the higher valued property. Happy to answer any other questions you have.
On the exit strategy for seller financing, say the deal was Property Value: $450K, DP: $80K, Loan $370K. Over 3 years, I make interest only payments to seller, but raise market rents and it assesses at $650K. Could I get an 80% LTV Cash-Out Refi ($520K), pay off the $37OK, and pocket the difference ($150K)? Is that how it would work?
[In my scenario below, I was thinking about a share of the equity upon refi (what @Jack Pasmore called "the kicker" or share of the upside) since I don't think the seller would agree the property values at only $450K, even though that's what the rent and NOI say]
@Jeremy Dugan In my experience, such a "kicker" is only present when the other party is an "investor" rather than the "lender". In your situation, the seller is providing debt, not equity. In my opinion, if you pay a "kicker" to the seller, you're just taking money out of your own pocket and transferring it to a party that is not taking an equity risk in the deal. Just my 3 cents!
8 Replies
- 1yJaycee GreenePro MemberReal Estate Consultant · St. Louis MSA · Member since 2024 · 3k+ posts · 727 votes
Quote from @Jeremy Dugan:
Good morning BP,
I am working with a potential off-market seller who wants to off-load their converted motel (8-units, 1 is the motel office that can be commercial space) as they retire. I've received their rent roles (4,760/mth) but believe that the market value is about $6,600 to $8,100/month. The Commercial Loan Officer I am working with comes up with a Loan Amount of $336,000 (Total value is $448,000) because of the low rents. I also have their expenses which are in line with my estimates/analysis.
I do not believe the Seller's will like that valuation and I know they are hiring an appraiser. Also, I believe they own this property out-right, no loans, etc.
I'd like to structure a deal where they provide seller's financing with a 2-3 year off-load timeline that gives them a) some cash now via a down payment and b) some regular monthly income all while I work to bring rents to market value and we both benefit on the sale and refi.
How would something like that work and what would it look like? Very much appreciate any advice or recommendations on how to approach this conversation/negotiation.
Hey @Jeremy Dugan, welcome to the BP Forum! Looks like you've already outlined most of the way something like that would work. One thing that I would add is your plan to refinance the property once the sellers note matures and that's when you'd pay them the rest of the purchase price through a cash out of the higher valued property. Happy to answer any other questions you have.
- New to Real Estate · Springfield, MA · Member since 2024 · 8 posts · 14 votes1y
Quote from @Jaycee Greene:
Quote from @Jeremy Dugan:
Good morning BP,
I am working with a potential off-market seller who wants to off-load their converted motel (8-units, 1 is the motel office that can be commercial space) as they retire. I've received their rent roles (4,760/mth) but believe that the market value is about $6,600 to $8,100/month. The Commercial Loan Officer I am working with comes up with a Loan Amount of $336,000 (Total value is $448,000) because of the low rents. I also have their expenses which are in line with my estimates/analysis.
I do not believe the Seller's will like that valuation and I know they are hiring an appraiser. Also, I believe they own this property out-right, no loans, etc.
I'd like to structure a deal where they provide seller's financing with a 2-3 year off-load timeline that gives them a) some cash now via a down payment and b) some regular monthly income all while I work to bring rents to market value and we both benefit on the sale and refi.
How would something like that work and what would it look like? Very much appreciate any advice or recommendations on how to approach this conversation/negotiation.
Hey @Jeremy Dugan, welcome to the BP Forum! Looks like you've already outlined most of the way something like that would work. One thing that I would add is your plan to refinance the property once the sellers note matures and that's when you'd pay them the rest of the purchase price through a cash out of the higher valued property. Happy to answer any other questions you have.
So, would the seller financing deal be based on the current value & rent roll or the future?
Say we structure the financing at $448K with 25% Down. Loan Amount is $336 and after 3 years the principal is $324K. In those 3 years, I've brought the Rent Roll up to $7,000/mth and it gets appraised for $700K. Those are favorable numbers for me...
Or do we do the financing based on the $700K future valuation, but with a smaller down payment of $100K (15%)?Or...could we do a deal where we finance it now on the current valuation...they get a DP (say $100K) and a regular mortgage payment (say $2,500/mth = $90K over 3 years) and they get a portion of the cash on the equity when I refi in 3 years (say 30% or an additional $90K) plus the remaining principal ($324K). They'd get $100K (DP) + $324K (Remaining Principal) + $90K (Payments) + $90K (Equity Cash) = $604K. Do deals work this way?
Or am I missing something and completely off base?
- 1yJaycee GreenePro MemberReal Estate Consultant · St. Louis MSA · Member since 2024 · 3k+ posts · 727 votes
Quote from @Jeremy Dugan:
Quote from @Jaycee Greene:
Quote from @Jeremy Dugan:
Good morning BP,
I am working with a potential off-market seller who wants to off-load their converted motel (8-units, 1 is the motel office that can be commercial space) as they retire. I've received their rent roles (4,760/mth) but believe that the market value is about $6,600 to $8,100/month. The Commercial Loan Officer I am working with comes up with a Loan Amount of $336,000 (Total value is $448,000) because of the low rents. I also have their expenses which are in line with my estimates/analysis.
I do not believe the Seller's will like that valuation and I know they are hiring an appraiser. Also, I believe they own this property out-right, no loans, etc.
I'd like to structure a deal where they provide seller's financing with a 2-3 year off-load timeline that gives them a) some cash now via a down payment and b) some regular monthly income all while I work to bring rents to market value and we both benefit on the sale and refi.
How would something like that work and what would it look like? Very much appreciate any advice or recommendations on how to approach this conversation/negotiation.
Hey @Jeremy Dugan, welcome to the BP Forum! Looks like you've already outlined most of the way something like that would work. One thing that I would add is your plan to refinance the property once the sellers note matures and that's when you'd pay them the rest of the purchase price through a cash out of the higher valued property. Happy to answer any other questions you have.
So, would the seller financing deal be based on the current value & rent roll or the future?
Say we structure the financing at $448K with 25% Down. Loan Amount is $336 and after 3 years the principal is $324K. In those 3 years, I've brought the Rent Roll up to $7,000/mth and it gets appraised for $700K. Those are favorable numbers for me...
Or do we do the financing based on the $700K future valuation, but with a smaller down payment of $100K (15%)?Or...could we do a deal where we finance it now on the current valuation...they get a DP (say $100K) and a regular mortgage payment (say $2,500/mth = $90K over 3 years) and they get a portion of the cash on the equity when I refi in 3 years (say 30% or an additional $90K) plus the remaining principal ($324K). They'd get $100K (DP) + $324K (Remaining Principal) + $90K (Payments) + $90K (Equity Cash) = $604K. Do deals work this way?
Or am I missing something and completely off base?
@Jeremy Dugan Technically, you can structure it anyway you want (and based on if the numbers work), but I mostly see seller fin deals where there's a disconnect between the buyer and seller about today's value and the 2 parties ultimately agree to the seller's higher sale price ($448k in your case), but with some lower cash amount paid upfront and then the remainder would be paid at maturity through the refinance at the then appraised value. In the meantime, you're paying interest on the $448k.
If you did your 3rd option, the seller is essentially becoming a Limited Partner in the deal, which I wouldn't advise unless the seller is very sophisticated.
- New to Real Estate · Springfield, MA · Member since 2024 · 8 posts · 14 votes1y
Quote from @Jaycee Greene:
Quote from @Jeremy Dugan:
Good morning BP,
I am working with a potential off-market seller who wants to off-load their converted motel (8-units, 1 is the motel office that can be commercial space) as they retire. I've received their rent roles (4,760/mth) but believe that the market value is about $6,600 to $8,100/month. The Commercial Loan Officer I am working with comes up with a Loan Amount of $336,000 (Total value is $448,000) because of the low rents. I also have their expenses which are in line with my estimates/analysis.
I do not believe the Seller's will like that valuation and I know they are hiring an appraiser. Also, I believe they own this property out-right, no loans, etc.
I'd like to structure a deal where they provide seller's financing with a 2-3 year off-load timeline that gives them a) some cash now via a down payment and b) some regular monthly income all while I work to bring rents to market value and we both benefit on the sale and refi.
How would something like that work and what would it look like? Very much appreciate any advice or recommendations on how to approach this conversation/negotiation.
Hey @Jeremy Dugan, welcome to the BP Forum! Looks like you've already outlined most of the way something like that would work. One thing that I would add is your plan to refinance the property once the sellers note matures and that's when you'd pay them the rest of the purchase price through a cash out of the higher valued property. Happy to answer any other questions you have.
On the exit strategy for seller financing, say the deal was Property Value: $450K, DP: $80K, Loan $370K. Over 3 years, I make interest only payments to seller, but raise market rents and it assesses at $650K. Could I get an 80% LTV Cash-Out Refi ($520K), pay off the $37OK, and pocket the difference ($150K)? Is that how it would work?
[In my scenario below, I was thinking about a share of the equity upon refi (what @Jack Pasmore called "the kicker" or share of the upside) since I don't think the seller would agree the property values at only $450K, even though that's what the rent and NOI say] - 1yJaycee GreenePro MemberReal Estate Consultant · St. Louis MSA · Member since 2024 · 3k+ posts · 727 votes
Quote from @Jeremy Dugan:
Quote from @Jaycee Greene:
Quote from @Jeremy Dugan:
Good morning BP,
I am working with a potential off-market seller who wants to off-load their converted motel (8-units, 1 is the motel office that can be commercial space) as they retire. I've received their rent roles (4,760/mth) but believe that the market value is about $6,600 to $8,100/month. The Commercial Loan Officer I am working with comes up with a Loan Amount of $336,000 (Total value is $448,000) because of the low rents. I also have their expenses which are in line with my estimates/analysis.
I do not believe the Seller's will like that valuation and I know they are hiring an appraiser. Also, I believe they own this property out-right, no loans, etc.
I'd like to structure a deal where they provide seller's financing with a 2-3 year off-load timeline that gives them a) some cash now via a down payment and b) some regular monthly income all while I work to bring rents to market value and we both benefit on the sale and refi.
How would something like that work and what would it look like? Very much appreciate any advice or recommendations on how to approach this conversation/negotiation.
Hey @Jeremy Dugan, welcome to the BP Forum! Looks like you've already outlined most of the way something like that would work. One thing that I would add is your plan to refinance the property once the sellers note matures and that's when you'd pay them the rest of the purchase price through a cash out of the higher valued property. Happy to answer any other questions you have.
On the exit strategy for seller financing, say the deal was Property Value: $450K, DP: $80K, Loan $370K. Over 3 years, I make interest only payments to seller, but raise market rents and it assesses at $650K. Could I get an 80% LTV Cash-Out Refi ($520K), pay off the $37OK, and pocket the difference ($150K)? Is that how it would work?
[In my scenario below, I was thinking about a share of the equity upon refi (what @Jack Pasmore called "the kicker" or share of the upside) since I don't think the seller would agree the property values at only $450K, even though that's what the rent and NOI say]@Jeremy Dugan In my experience, such a "kicker" is only present when the other party is an "investor" rather than the "lender". In your situation, the seller is providing debt, not equity. In my opinion, if you pay a "kicker" to the seller, you're just taking money out of your own pocket and transferring it to a party that is not taking an equity risk in the deal. Just my 3 cents!
- 1yDevin PetersonBusiness MemberLender · Sarasota, FL · Member since 2022 · 2k+ posts · 667 votes
Quote from @Jeremy Dugan:
Good morning BP,
I am working with a potential off-market seller who wants to off-load their converted motel (8-units, 1 is the motel office that can be commercial space) as they retire. I've received their rent roles (4,760/mth) but believe that the market value is about $6,600 to $8,100/month. The Commercial Loan Officer I am working with comes up with a Loan Amount of $336,000 (Total value is $448,000) because of the low rents. I also have their expenses which are in line with my estimates/analysis.
I do not believe the Seller's will like that valuation and I know they are hiring an appraiser. Also, I believe they own this property out-right, no loans, etc.
I'd like to structure a deal where they provide seller's financing with a 2-3 year off-load timeline that gives them a) some cash now via a down payment and b) some regular monthly income all while I work to bring rents to market value and we both benefit on the sale and refi.
How would something like that work and what would it look like? Very much appreciate any advice or recommendations on how to approach this conversation/negotiation.
Lots of way to cut this cookie. The bank will value the asset as-is - that be, the current rent roll and performance of the property. You will most likely not be able to get a LTV based on buyer generated pro forms future projections. You should be able to blend a first lien position Commecial loan with a seller carried 2nd to reach the determined dispo price so long as the debt service meets minimum guidelines. (You'd had to negotiate a really good rate/deal on the second to get this to one to float). I am local to you in Springfield/Hartford Ct area and see this quite often. More than happy to connect and chat if you'd like. Good luck!
ProAlpha Capital56 Reviews - Specialist · Member since 2025 · 41 posts · 18 votes1y
You're looking at this deal the right way—structuring it so everyone wins—but the way you present it to the seller will determine whether you walk away with a great opportunity or gain negotiation experience with a conversation that goes nowhere.
Here’s what I would do to own this negotiation:
First, control the frame. Right now, the seller is likely operating from a valuation mindset that doesn’t align with reality. They’re going to get an appraisal, but appraisals are backward-looking—they don’t account for potential, only for what exists today. That’s your advantage. You know where the market is headed, because you’re the one creating value here.
So instead of asking them to see it your way, you subtly lead them there:
“Here’s the reality: this property, as it sits today, is valued based on its income, and banks aren’t going to lend on future projections. I can get you cash in hand now, plus structured payments that eliminate risk for you—while I take on the work of repositioning the property to its true value. In three years, you walk away with significantly more than any cash buyer would give you today.”
That’s intrigue. That’s leverage. Now they’re not just selling a property—they’re getting a custom solution that benefits them without the headache of trying to squeeze top dollar out of a market that won’t finance it.
Now, the structure:
- You operate on today’s valuation ($448K).
- They get a down payment that works for you and satisfies their need for cash now.
- You carry the property, increase rents, and refi in 2-3 years at $700K+.
- At refi, they get a kicker—a share of the upside—making them feel like they got the better deal.
Why does this work? Because they stop thinking about "getting squeezed" on today’s price and start thinking about the bigger win down the road.
And here’s the key: You don’t chase. You present this as the opportunity. If they don’t see it? No problem. There are other deals. But deep down, they’ll know this was a smart play tailored to them.
Let them come to you. That’s how you control the deal.
- Specialist · Member since 2025 · 41 posts · 18 votes1y
This structure is absolutely feasible, and it’s legal, assuming all terms are clearly outlined in the seller financing agreement. Just ensure that:
- -You get a solid property appraisal at the refi stage.
- -The seller is on board with the idea of sharing equity (this needs to be documented upfront in the financing agreement).
- -The lender you work with is comfortable with this setup (particularly the cash-out portion and LTV).
This would 100% work as long as both parties are aligned on the terms. I've been apart of transactions where the deal was structured by offering the seller a percentage of the difference between the original purchase price and the new value at refi. For example, the seller could receive a percentage (say 10-15%) of the $150K equity increase upon refi.
This would align their interests with yours, giving them an incentive to accept seller financing in the first place.
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