Creative Financing on Office space

4 Replies

I am talking to a seller that has office space that he owns free and clear. He wants out and is open to creative financing. The office space is around 3500 Sq Ft and his not leased out right now. I am looking for what creative financing options can I present it to the seller so that it is win win for all. I will use part of this space and the rest I will lease it out. Also, what would be a good way to estimate the price for the property with  (90 -100%) seller financing.

Hi Himanshu, if its vacant, I am sure he is motivated! You will need to get a competent, licensed appraiser to give you a realistic price. 

Then if you can't get conventional financing, an owner carry back note for the balance after your down payment could be his best bet. After 3-6 months of payments, he can sell the note for a discount, and use the cash for whatever he needs. Good luck and keep us posted on how it goes.

Well, first you need more information about what the seller's needs might be. His requirement for cash, his tax liability, if he has any personal issues such as health concerns that may impact immediate or future asset assessments, is he getting out of real estate or can an exchange entice him, what should rent levels be, is he dumping due to any future legal concerns, any expected zoning or government actions expected to impact the property or other external matters motivating him?

He may be able to take a note and sell it, just a few months seasoning at a high LTV will likely cause him to have a heart attack when he gets bids.

What assets do you have to play with, any collateral, any other income to pledge, accounts receivables from other operations or business interests?

If you pledge rents make sure you have enough for insurance, taxes, maintenance and a reasonable management fee.

In order to put the best win-win on the table, you need to address his financial position as he may have a bit of financial planning to do to walk away with the best arrangement for him and one you're willing to offer. No idea of how big the deal is, if it's significant and he has a tax issue, seller financing will certainly be a good way to go, he may be better of having a charitable remainder trust, breaking up the note in a partitioned note for distributions at different times.

Just want something simple, if he wants $500,000 over twenty years, give him zero coupon bonds to mature to his price, borrow about 20% on the value of the building to purchase the bonds, not really a win-win, but if he's leaving for Mars he may not care!  LOL   

There's also a twist you can offer him in a note carry situation that may sweeten the pot if he wants to purchase new property.  If he wants to carry a note back there is  way to do that and still include it in a 1031 exchange and defer all tax.  So even if he sells to you and carries back a mortgage he can still make the entire transaction tax deferred.  That might motivate him more.  You just need to dig a little deeper for his true and most powerful motivations.

Dave

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