Commercial Partners Realty, Inc.
There is increasing sales activity in both the office and industrial markets in the Tampa Bay area, and the savvy players are the ones doing the deals. With vacancy rates hovering around 20%, realistic expectations and creativity are a necessity.
Realism and creativity are cornerstones to making deals work today. Seller financing has become an important tool to overcome the difficult requirements being set by traditional lenders like banks and credit unions.
Tenants with realistic expectations are in a great position as well. This is a perfect time for a tenant to become an owner, with office and industrial prices down to levels below what they were 5-6 years ago, and below the cost to replace the building. With all the creativity that’s being used today, analyzing what makes a good deal can be a little more difficult than it has been in the past.
When a seller is willing to provide financing, they can accomplish a couple of different, but important goals. They may turn a potential tenant into a buyer by giving them the means to purchase that they might not otherwise have. At the same time, they can help increase the sale price by providing financing that’s more attractive than traditional lenders. As we’ve seen in the past, a buyer may be willing to pay a little more if their cost of funds is lower. The seller also turns their sale profit into an annuity and further increases their yield with the interest payments they receive.
By using seller financing, the potential buyer may be able to bring their mortgage payment in line with what they would’ve had to pay in rent. They can keep their monthly cost the same, but now they’ll be building equity. They’ll still need to come up with a down payment, however, the down payment for owner financing may be significantly lower than with a traditional lender.
In the end, this can be a win-win situation. The former tenant is now building equity, and has an asset with growing equity, rather than the liability of a lease. The seller has moved his property, received a down payment, and can take the building back should the buyer fail to keep up with the mortgage payments.
Seller financing is something I encourage both sellers and tenants to consider. It can help a seller get their property sold, and it can turn a potential tenant into a buyer, something they will be very happy with years down the road as prices and rent rates begin to rebound.