Jerry W. Williams: Owner Financing

A Financial Win-Win for Companies and Commercial Real Estate Owners

Owner financing is a financial arrangement in which the seller of a commercial property finances the purchase for the buyer. This can be a beneficial option for both parties, as it can provide the seller with a recurring stream of income, improve their cash flow, and reduce their risk. For buyers, owner financing can make it possible to purchase a commercial property without having to qualify for a traditional mortgage. This can be especially beneficial for buyers who may have a lower credit score or a higher debt-to-income ratio.

Benefits for Companies

There are a number of financial benefits for companies that choose to offer owner financing to buyers. These benefits include:

• Generate recurring income: Owner financing allows companies to generate a recurring stream of income from the interest payments made by the buyer. This income can be used to fund other business initiatives, such as growth or expansion.
• Improve cash flow: By owner financing a commercial property sale, companies can receive a down payment from the buyer and then spread the remaining balance of the sale price over a period of time. This can help to improve the company’s cash flow and reduce its reliance on external financing.
• Reduce risk: Owner financing can help to reduce the risk associated with selling a commercial property. If the buyer defaults on their payments, the company can foreclose on the property and retain ownership. This can help to protect the company’s investment and minimize any financial losses.

Benefits for Commercial Real Estate Owners

Commercial real estate owners can also benefit financially from offering owner financing to buyers. These benefits include:

• Sell to a wider range of buyers: Owner financing can make it possible to sell a commercial property to a wider range of buyers, including those who may not be able to qualify for a traditional mortgage. This can help to expand the pool of potential buyers and increase the likelihood of selling the property quickly.
• Get a higher selling price: In some cases, commercial real estate owners may be able to get a higher selling price for their property by offering owner financing. This is because buyers may be willing to pay a premium for the convenience and flexibility of owner financing.
• Defer capital gains taxes: Owner financing can allow commercial real estate owners to defer paying capital gains taxes on the sale of their property. This is because the seller is not receiving the full sale price upfront, but rather over a period of time. This can help to reduce the seller’s tax liability in the year of the sale.

How to Get Started with Owner Financing

If you are a company or commercial real estate owner considering offering owner financing, there are a few steps you can take to get started:

1. Consult with a financial advisor: It is important to speak with a qualified financial advisor to discuss the specific benefits and risks of owner financing before making a decision.
2. Develop a financing agreement: Once you have decided to offer owner financing, you will need to develop a financing agreement with the buyer. This agreement should outline the terms of the loan, including the interest rate, repayment schedule, and consequences of default.
3. Secure collateral: In most cases, you will require the buyer to provide collateral for the loan. This collateral can be the commercial property itself or other assets that the buyer owns.

Conclusion

Owner financing can be a mutually beneficial arrangement for both companies and commercial real estate owners. By offering owner financing, companies can generate recurring income, improve their cash flow, and reduce their risk. Commercial real estate owners can sell to a wider range of buyers, get a higher selling price, and defer capital gains taxes.

If you are considering owner financing, it is important to consult with a financial advisor and develop a financing agreement that protects your interests.