The Northwood Group

Building Partner Investors

Utah Commercial Real Estate – Seller Financing Discussion

April 18


Over the past several years as financing has been more difficult we have seen many deals reach completion with the help of seller financing in the Utah commercial real estate market.  It has taken on many forms from the basic 1st position seller financed purchase, to a 2nd position to bridge the loan to value gap, to even more creative scenarios such as all inclusive trust deeds whereby existing financing is wrapped into the seller financed note.  We have seen some of these strategies used by large private investors and smaller 1031 exchange buyers alike.  With the lack of good 1031 exchange properties on the market, we have also seen sellers in some cases willing to sell only under a seller financed structure so that they can spread out their tax liability and make a better return than they perceive that they can make in other investments.  I am going to address the potential benefits of seller financing from both the perspective of the investor and the seller in a transaction:

Benefits to a Seller:

  • Opens the door to a wider pool of potential investors
  • Often times leads to a higher pricing structure
  • Potential tax savings due to timing of payments
  • Accelerated closings whereas you are not waiting on a 3rd party lender

Benefits to an Investor:

  • Usually less transaction costs (loan fees, legal fees, etc)
  • Potentially higher loan to values than traditional financing
  • Ability to close quickly in the case of 1031 exchange
  • Less annual reporting as compared to a traditional lender

With those points in mind, prior to proceeding with this type of a structure an investor and seller should consult with their tax advisor and legal counsel to make sure that the deal is right for them.  The biggest hurdle to many seller financed deals is the credit-worthiness of the investor.  A seller needs to complete a careful due diligence of the investor to determine its credit worthiness.  In many cases, a personal guarantee is warranted and sometimes even collateral on other assets is taken.

Oftentimes we see sellers rule out this potential structure too quickly. However, in many cases (but not all) it can make the deal more profitable for both parties.  It is a strategy that should be given due consideration as an acquisition or disposition is being considered.