Owner Financing Commercial Real Estate

Commercial real estate can be a great investment, but it can be difficult to come up with the money to buy it. That’s where owner financing comes in. But what is owner financing commercial real estate? Owner financing is when the owner of a property agrees to finance the purchase of that property for the buyer. This can be a great way to get into commercial properties and real estate ownership without having to go through a bank or other lending institution. In this blog post, we will discuss some of the benefits of owner financing and how you can take advantage of it!

Owner financing, which is also known as seller financing — the phrases are interchangeable — essentially denotes a seller’s willingness to fund the buyer’s acquisition of the property. In many situations, the seller also serves as the lender and establishes the loan terms.

Key Takeaways

  • Owner financing, also known as seller financing, gives buyers the option of buying commercial real estate without using a loan.
  • The owner or seller financing deal, typically with an interest rate that is higher than current loan rates and a balloon payment that won’t be due for at least five years.
  • According to the terms of seller financing, the property’s owner (the property seller) retains the property’s title as a kind of leverage up until the loan is fully paid off.
Owner Financing Commercial Real Estate

What is Owner Financing Commercial Real Estate?

Owner financing, also known as seller financing, is a unique method of buying commercial real estate that has gained traction among commercial real estate investors. Unlike traditional financing, owner financing involves the seller of the commercial real estate property extending a loan to the buyer, eliminating the need for a third-party lender. This approach can be particularly advantageous for buyers who may not qualify for loans through conventional lending institutions.

For example, a buyer interested in purchasing a commercial property, who may not have strong credit, can secure an owner financing arrangement with the seller. The seller, who is usually the owner of the commercial real estate property, agrees to finance the commercial real estate deal. The buyer then repays the loan over a period of time, usually agreed upon by both parties in the terms of a promissory note, similar to a mortgage.

Owner financing is not limited to commercial properties but can also be utilized for residential property purchases. However, it is particularly popular in the commercial real estate sector, as it can provide several benefits for both buyers and sellers of commercial properties.

One of the main advantages for a buyer participating in owner financing is the potential for a more straightforward and faster process. Since there’s no involvement from a third-party lender, the buyer may face fewer hurdles while finalizing their commercial real estate deal. Additionally, owner financing often offers more flexibility in terms of the down payment, interest rate, and repayment schedule – making it an attractive option for commercial real estate investors.

On the other hand, sellers of commercial properties can attract a wider pool of potential buyers, as those unable to obtain financing through traditional means can consider this alternative. Owner financing can also lead to a quicker sale of the commercial real estate property, allowing the seller to capitalize on their investment.

Overall, owner financing is a unique and advantageous way of buying commercial real estate that can benefit both parties involved. For commercial real estate investors looking to expand their portfolios or secure their first commercial property purchase, owner financing might be a viable option to consider.

Pros and Cons of Owner Financing

Here are the pros and cons of owner financing:

Seller benefits

Interest incomeSeller earns interest on the loan
Quick saleAbility to sell a challenging property fast and at a fair price
Tax savingsPotential income tax savings by treating loan on an installment basis
Larger buyer poolFinancing option attracts more potential buyers
Faster closingSale usually closes more quickly with seller financing
Control during transitionSeller retains some ownership to ensure business continues successfully
Negotiating powerSeller can command full asking price
Cash flowConsistent cash flow from loan payments
  • Interest on the loan is earned by the seller.
  • The capacity to sell a difficult property quickly, for a fair price, and after spending a minimal amount of time on the market. collecting monthly interest income from the buyer for the seller as a component of each loan payment.
  • If the loan can be treated on an installment basis so that the seller only pays tax on the sale when payments are received over time, the seller often saves on income taxes.
  • If the seller agrees to finance, there are more buyers available.
  • When the seller offers to finance, the sale usually closes sooner.
  • During a period of transition, the seller keeps a portion of the company to guarantee that it continues to thrive and satisfy customers.
  • With additional negotiating power, the seller can demand the full asking purchase price.
  • The seller might want to get a consistent cash flow throughout the loan term.
  • Owner financing business sale allows the seller to earn interest income on the loan.

Seller drawbacks

  • There is a higher level of risk. The vendor assumes the risk that the buyer won’t make the required payment.
  • The seller still has a stake in the company. If the seller had preferred to leave the company completely, this is a con.
  • Less money is available for the seller to reinvest right away. If a seller requires a sizable amount of money to invest in a new business, they might not want to offer owner financing.
  • To ensure that the buyer can continue to operate the business and make payments, the seller needs to conduct additional due diligence on them. This would entail investigating factors including the buyer’s credit history and the availability of collateral.
  • If the buyer additionally has a bank loan to help with the transaction, the lender will need a subordination agreement and maybe a standstill agreement to guarantee that the buyer’s loan has legal precedence over the seller’s loan.
  • In the event of a default, the seller’s sole option for recovery might be to retake the company, which might be in far worse condition than when it was sold.

Buyer benefits

  • It provides the buyer with additional capital access to fill in any financing shortages.
  • The terms of the loan may be more lenient from the Seller than they would be from a bank. Seller financing is frequently set up as a short-term loan (3–7 years) with longer-term (10–20 years) amortization schedules and a balloon payment at maturity. In this scenario:
  • The total amount of the buyer’s monthly payments could be lowered to a level that the buyer can afford or that offers the buyer more breathing room to use cash flow to pay bills and cover costs throughout the business’s transition phase.
  • It is more likely that a standard loan application will be approved to refinance the sum owing at the conclusion of the loan term.

Buyer drawbacks

  • The seller still has a stake in the company’s future success. This could be a drawback if the seller exhibits excessive assertiveness and disregards the new owner’s autonomy.
  • Since a bank wouldn’t have the knowledge to run the business, the seller would, thus he or she would be more eager to accelerate the loan and try to retake the company if the buyer falls behind on payments to the seller.
  • There will be a need for additional closing documents. The seller financing will probably need the following papers: a promissory note, personal guaranty, security agreement, subordination agreement, UCC-1 filing, and maybe other security documents. This is not a major undertaking (e.g. Deed of Trust if real estate is secured).

Owner Financing Terms to Know

What is Owner Financing Commercial Properties?

Owner financing, also known as seller financing, is an attractive alternative that facilitates buying commercial real estate without having to approach traditional lending institutions for commercial real estate loans. Instead, the seller of the property – typically the owner – finances the purchase, essentially cutting out the middleman and streamlining the process involved in the acquisition of a commercial property.

Unlike conventional lending mechanisms, owner financing often carries an interest rate higher than traditional commercial real estate loans and typically stipulates a balloon payment to be paid at least five years into the term of the loan.

Owner Financing Terms To Know

Navigating owner financing arrangements requires working knowledge of specific key terms, such as the following:

  1. Promissory Note: This is the document that outlines the terms of the loan and repayment, including the interest rate, payment schedule, and consequences of default.
  2. Balloon Payment: This refers to a large, lump-sum payment that is due at the end of a loan’s term. In many owner-financed deals, regular payments are made for a set period, followed by a balloon payment to clear the balance.
  3. Trust Deed: This document essentially transfers a property’s title to a neutral third party, who holds it as security for a loan.

Engaging a commercial real estate attorney is highly recommended when dealing with owner financing transactions – they can provide crucial legal advice and handle the paperwork involved. Moreover, a commercial real estate broker can assist in finding suitable properties and negotiating favorable terms.

For the buyer, this arrangement can simplify the process and reduce the time it takes to close a commercial real estate investment deal. Owner financing can enable not just the acquisition of commercial properties but also residential properties under similar terms.

In essence, owner financing is an alternative route to buying commercial real estate that can provide more flexibility and control over the process as compared to traditional lending methods.

If you’re interested in learning how to sell a commercial building but don’t know how to start, make sure to read how here or you can schedule a free consultation with me.


Amortization is the process of dividing a loan into periodic payments that include both principal and interest. Loans for commercial real estate, which are often entirely or partially moved depending on their kind, can be amortized in a variety of methods.

One form of financing option is interest-only loans, which let you pay nothing but interest and nothing else. This means there won’t be a principal payment for a while, which, depending on your situation and the type of it, may have both advantages and disadvantages (amortizing vs non-amortizing).


The length of a loan, or the time it takes to be fully repaid when the borrower is making scheduled payments, is referred to as the loan term. These loans can be long- or short-term, and the duration of a loan is the length of time it takes to pay off the obligation for which it was obtained.


A balloon payment is a one-time, larger-than-normal payment due at the conclusion of the loan term. Your monthly loan payment may be reduced in the years prior to the balloon payment, but you may end up owing a substantial sum at the conclusion of the loan if you have one.

Promissory note 

A promissory note, also known as a note payable, is a legal document in which one party agrees in writing to pay another party a certain amount of money on demand or at a specific future time, subject to certain terms and conditions.

The Truth About Real Estate Investing

In the dynamic realm of real estate investing, embracing a spectrum of strategies is fundamental, with owner financing emerging as a potent yet often underestimated avenue. This innovative approach, akin to “how to buy a business with seller financing,” introduces a versatile path for acquiring commercial property, making it a noteworthy addition to an investor’s arsenal. Owner financing, by its nature, provides a unique alternative for those seeking to delve into the commercial real estate sector without the constraints of traditional financing methods.

The allure of owner financing lies in its capacity to democratize the investment landscape, particularly for those eyeing “seller financing business for sale.” It extends an olive branch to investors who might grapple with the stringent prerequisites of conventional loans, thereby broadening the horizon for purchasing commercial real estate. This method not only paves the way for more inclusive investment opportunities but also facilitates swifter transactions, free from the intricate web of bureaucracy typically entwined with banking institutions. Such efficiency is invaluable, especially when the goal is to transition swiftly from one investment to the next, enhancing portfolio diversity and growth.

However, as with any investment strategy, a balanced view is crucial. The narrative of “seller financing commercial real estate” is not devoid of its challenges. The investor shoulders a significant portion of risk in these arrangements. A default in payments can precipitate severe repercussions, including the potential foreclosure of the property by the owner, thus underscoring the necessity for meticulous planning and risk assessment.

Given the intricate blend of opportunities and challenges inherent in owner financing, the counsel of seasoned professionals—a commercial real estate broker and a legal expert—becomes indispensable. Their expertise ensures that every facet of an owner-financing deal is navigated with precision, safeguarding the interests of the investor while optimizing the potential for success.

In essence, owner financing stands as a testament to the creative and pragmatic strategies within real estate investing. It offers an alternative route to “how to buy a business with seller financing,” providing flexible terms and expedited dealings that traditional financing avenues may not offer. Nonetheless, a thorough understanding of the associated risks is paramount. When approached with diligence and expert guidance, owner financing can indeed revolutionize the way investors engage with the commercial real estate market, affirming the adage that diversity in investment strategies is not just beneficial but essential.

What is Seller Financing for Commercial Real Estate?

Seller financing for commercial real estate, also referred to as owner financing, is an alternative financing arrangement where the seller provides financing directly to the buyer for the purchase of the property. This allows the transaction to proceed without the buyer having to obtain a loan from a third party lender like a bank.

I want to explain a bit more about how seller financing works for commercial real estate transactions:

  • The seller carries back a mortgage or trust deed on the property to secure the loan to the buyer.
  • Rather than receiving full payment in cash at closing, the seller effectively becomes the bank and provides financing for the deal.
  • This carries higher risk for the seller, but also provides more flexibility in deal terms and expands the buyer pool.
  • The buyer makes regular payments to the seller over a set period of time until the loan is satisfied.
  • Terms like interest rate, down payment, and repayment schedule can potentially be more favorable than traditional bank financing.
  • Allows buyers who may not qualify for normal commercial loans to still purchase the property.
  • Can help transactions close more quickly since no external financing is required.
  • Owner-financed commercial property can help buyers purchase even if they don’t qualify for a traditional commercial loan.

Seller financing and owner financing are essentially two terms for the same concept – the seller providing financing directly to the buyer. However, there is sometimes confusion between the two terms:

  • Owner financing tends to refer to situations where the seller is also the current owner of the property.
  • Seller financing is a more general term that can also apply when the seller is something like an intermediary or investor rather than the actual property owner.
  • So while there is significant overlap, the terms are not completely interchangeable.
  • For most commercial real estate transactions where the current owner is providing the financing, the terms seller financing and owner financing can be used interchangeably.
  • But seller financing is likely the more accurate and encompassing term, since financing could also be offered by a party other than the actual property owner.

The core concept is the same – the financing comes directly from the seller rather than an outside lender. But it’s worth knowing the nuanced differences between the terminology.

How Does Owner Financing Work?

Now that we’ve covered the benefits of owner financing, you may be wondering – how does it actually work?

Owner financing is a unique arrangement where the seller provides direct financing to the buyer to purchase the property. Here is an overview of how the process typically works:

  • The buyer and seller negotiate the terms of the deal including purchase price, down payment amount, interest rate, and repayment schedule. This provides flexibility not found with traditional bank financing.
  • The buyer makes a down payment directly to the seller, often between 10-30% of the purchase price.
  • The seller retains legal title to the property until the buyer has fully paid off the remaining loan balance.
  • The buyer makes scheduled installment payments, usually monthly, directly to the seller over a number of years. A common timeframe is 5-10 years.
  • These payments go towards paying down the loan principal and interest based on the negotiated rate.
  • Once the loan is fully satisfied, the seller signs over legal title and ownership of the property to the buyer.
  • If there is still a balance at the end of the loan term, the buyer may need to pay off the remaining balance or refinance through another lender.
  • Owner financing arrangements can include creative elements like balloon payments, variable rates, and flexible grace periods.

The direct seller-buyer relationship and lack of bank involvement provides unique flexibility, but also puts more risk on the seller. But when structured properly, owner financing can facilitate transactions that work for both parties.

Financing Options for Commercial Property

When looking to purchase commercial real estate, securing financing is a key step. There are several options investors should consider when seeking to finance a commercial property acquisition.

Traditional Lending

The most common route is getting a loan from a bank or other institutional lender. This includes options like:

  • Commercial mortgages
  • Commercial construction loans
  • Lines of credit
  • Hard money loans

Banks will underwrite the deal and require personal or business financials, credit scores, and loan terms. Approval is not guaranteed.

Owner Financing

With owner financing, the seller carries the financing. This provides more flexibility but also puts risk on the seller.

  • May have lower down payments, interest rates, or qualifications.
  • Loan terms are negotiated directly between buyer and seller.
  • Allows buyers who may not qualify for institutional loans.
  • Transactions can close more quickly without bank involvement.


Crowdfunding pools capital from multiple alternative investors rather than a single lender.

  • Tap into capital from individual investors, private funds, and family offices.
  • Provides more flexibility than banks but required same due diligence.
  • Higher costs compared to traditional loans.

Hard Money Loans

Hard money loans are asset-based loans from private lenders and investors.

  • Fast financing based on the real estate as collateral rather than borrower.
  • Interest rates are much higher than traditional loans.
  • Used as bridge financing before longer term loans.

The optimal financing mix depends on factors like timeline, cost, qualifications, and risk tolerance. Discussing options with a knowledgeable broker is key.

How to Buy Commercial Real Estate

Now that we’ve covered some of the key financing options for commercial real estate for commercial properties, let’s discuss the step-by-step process for how to buy commercial real estate.

Purchasing commercial real estate involves multiple stages, including:

  1. Defining Your Investment Strategy – Outline your investing goals, ideal property types, target locations, budget, timeline, and other criteria to focus your search.
  2. Market Research – Thoroughly research market conditions, trends, and property availability in your areas of interest. Track sales comps and market data.
  3. Property Search – Lean on an experienced broker to identify potential investment properties that match your strategy. Visit promising listings in person.
  4. Making an Offer – Submit a formal offer negotiating purchase price, deposit amount, timeframes, contingencies, and other terms.
  5. Negotiations – Work with the seller to finalize sale terms and price through rounds of offers and counteroffers.
  6. Due Diligence – Conduct thorough due diligence like inspections, financial audits, and risk assessments.
  7. Financing – Secure financing for the purchase through options we discussed like traditional loans or owner financing.
  8. Closing – Finalize the transaction by closing and transferring property rights and payment.

Having an experienced commercial real estate professional to guide you through this multi-step process is invaluable for first-time investors. Let me know if you need any clarification or have additional questions about the process of buying commercial real estate!

Owner Financing Commercial Real Estate FAQs

What Are the Risks of Seller-Financing?

Lack of a trustworthy buyer or one who will not deal with you honestly is by far the biggest risk. It is crucial to conduct both financial and business reputation due diligence on your buyer as a result.

Examine your buyer’s financial records, tax returns, and credit history. Additionally, it is important to obtain references from banks and companies. Remember to proceed with caution if the Buyer refuses to provide you with references.

In order to determine the possibility that the Buyer will fulfill their obligations under the transaction, try to gain an accurate picture of how they manage their finances.

Why Would a Seller Consider Creative Financing?

This method is advantageous since it allows the buyer to receive financing without incurring transaction fees and without using up funds to secure a new loan. Using this method, the buyer can acquire a property right away without having to endure the lengthy loan origination procedure.

What are typical owner financing terms?

The majority of owner-financing agreements involve brief loans with minimal monthly installments. The loan is often amortized over 30 years (keeping monthly payments low), with the final balloon payment due in only five to ten years.

Does owner financing go on your credit?

Typically, owner financing does not appear on the buyer’s credit report. Although sellers are recommended to run a credit check nonetheless, there is normally a significant down payment required (about 10 percent to 15 percent) to make up for the fact that the financing isn’t based on the buyer’s income or credit history.

Who holds the title in seller financing?

In accordance with the rules of seller financing, the owner of the property (the property seller) keeps the title to the property as a kind of leverage until the loan is fully repaid.

What is business property finance?

Business property finance refers to funding and loans used by companies to purchase or improve commercial real estate like office buildings, retail space, warehouses, and other properties used for business operations. It covers options like commercial mortgages, construction loans, lines of credit, and alternative financing.


Owner financing is also known as seller financing, owner carryback, the owner will carry, bearing the note, commercial owner financing, and owner carried financing. Even when the property in question is a building rather than commercial land for sale by an owner, commercial real estate owner financing is sometimes referred to as a “land contract” in some areas.

Though this financing option does carry some risk, it can be an excellent way for buyers to obtain commercial real estate transactions quickly without incurring additional fees or using their own funds. Ultimately, whether you choose owner-financing or a more traditional loan will depend on your needs and the property you are looking to purchase.

Are you interested in learning more about owner financing for commercial property purchases? If so, be sure to schedule a free call with me today to discuss your options and get started on the path to purchasing your dream commercial real estate!

Blog Articles Disclaimer

The information presented in articles on our website or affiliated platforms is exclusively intended for informational purposes. It’s crucial to grasp that this content does not constitute professional advice or services. We strongly recommend our readers to seek guidance from appropriately qualified experts, including, but not limited to, real estate and other attorneys, accountants, financial planners, bankers, mortgage professionals, architects, government officials, engineers, and related professionals. These experts can offer personalized counsel tailored to the specific nuances of your individual circumstances. Relying on the content without consulting the relevant experts may hinder informed decision-making. Consequently, neither Tolj Commercial Real Estate nor its agents assume any responsibility for potential consequences that may arise from such action.

Similar Posts