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Selling Commercial Property Part 3
In Selling Commercial Property Part 3 we continue to explore the options available for this particular owner financed property.
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Transcript: We last left the seller of our New York City commercial building for a million and a quarter, wondering if maybe there’s another way to structure the carry back loan that he’s going to do with the buyer. One of the ways that he can do it, instead of structuring it for a ten year amortization, no balloon, is to maybe charge more interest. Instead of four percent, maybe charge six percent but amortize it for 30 years. This will save the buyer some money on a monthly basis but it will also mean that in roughly ten years, they will have over 900,000 dollar balloon payment. As a seller, and that’s who I would represent here, we’ve got to look at what are the downsides to this approach. Right away, I don’t care if you’re selling the property for market now and it’s a decade down the road, the bottom line is you’re going to be owed 930, 940 thousand dollars in ten years. What will the market have done? In ten years, that value could have doubled, could have gone down 30 percent. We don’t know that. There’s nothing like being owed almost a million dollars and the property not be worth almost a million dollars. That’s where the buyer, if they wanted to, could just walk away. Now, that’s an unlikely scenario, but it is not rare, so don’t push it off and say, “Well, it’s not going to happen.” You definitely have to think of that. The way you look at it is this. Let’s explore a couple of different approaches. If they know they’re going to get 900 and some thousand dollars, ten years down the road and they realize that in ten years all three of these partners selling it will be retired, they may be in a better position tax-wise. Now, they may not but it might be something that they can consider restructuring as it gets closer. Usually when you restructure so as not to incur a tax liability as a note holder, usually the note payer doesn’t object, because that’s 900 and some thousand they may not have to come up with. Let’s talk about how the seller’s going to be treated tax-wise. Let’s save that for next time.
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By BawldGuy, Jeff BrownIn Selling Commercial Property Part 3 we continue to explore the options available for this particular owner financed property.
Download Audio
Transcript: We last left the seller of our New York City commercial building for a million and a quarter, wondering if maybe there’s another way to structure the carry back loan that he’s going to do with the buyer. One of the ways that he can do it, instead of structuring it for a ten year amortization, no balloon, is to maybe charge more interest. Instead of four percent, maybe charge six percent but amortize it for 30 years. This will save the buyer some money on a monthly basis but it will also mean that in roughly ten years, they will have over 900,000 dollar balloon payment. As a seller, and that’s who I would represent here, we’ve got to look at what are the downsides to this approach. Right away, I don’t care if you’re selling the property for market now and it’s a decade down the road, the bottom line is you’re going to be owed 930, 940 thousand dollars in ten years. What will the market have done? In ten years, that value could have doubled, could have gone down 30 percent. We don’t know that. There’s nothing like being owed almost a million dollars and the property not be worth almost a million dollars. That’s where the buyer, if they wanted to, could just walk away. Now, that’s an unlikely scenario, but it is not rare, so don’t push it off and say, “Well, it’s not going to happen.” You definitely have to think of that. The way you look at it is this. Let’s explore a couple of different approaches. If they know they’re going to get 900 and some thousand dollars, ten years down the road and they realize that in ten years all three of these partners selling it will be retired, they may be in a better position tax-wise. Now, they may not but it might be something that they can consider restructuring as it gets closer. Usually when you restructure so as not to incur a tax liability as a note holder, usually the note payer doesn’t object, because that’s 900 and some thousand they may not have to come up with. Let’s talk about how the seller’s going to be treated tax-wise. Let’s save that for next time.