Seller Financing? Don’t Make Up the Interest Rate

[William Thompson]

I see investors negotiate the price, down payment, and balloon payment, then casually pick an interest rate that “feels fair.”

That can create a tax problem.

The IRS publishes minimum federal interest rates every month. If your seller-financed or private loan is below the applicable rate, the IRS may treat part of the deal as interest anyway.

That means the rate, loan term, payment schedule, and documentation all matter.

Seller financing can be a great tool, but friendly terms do not always equal tax-friendly terms.

Curious how many investors here have structured seller financing without reviewing the tax side first?

[John Morgan]

I seller finance with 7-9% interest rates. I'm more looking for a round monthly payment so I adjust the interest rate accordingly. My buyers don't seem to really care about the interest rates.