You’ve probably heard the saying:
“Developers or investors never have any cash.”
Why? Because their capital is usually already tied up in other commercial deals.
So what happens when a great new deal suddenly pops up — maybe the exact kind of opportunity you’ve waited five years for — and you’ve only got 50% or less of the down payment on hand?
Do you miss out?
Not necessarily.
Enter: Owner Financing
In the U.S., owner (or seller) financing is a common strategy that allows deals like this to happen — especially when buyers are tight on cash but the fundamentals of the deal are strong.
Here’s how it works:
Example Scenario
Purchase Price: $2,000,000
Typical Bank Loan (80%): $1,600,000
Required Down Payment (20%): $400,000
Cash Available: $100,000
Shortfall: $300,000
Deal Structure Using Seller Financing
Bank Loan: $1,600,000 (interest-only for 18 months)
Seller Finance: $300,000 (interest-only for 18 months)
Buyer Cash: $100,000
This structure gives you control of the asset without needing the full 20% upfront.
You position the deal with an 18-month interest-only term to give you time to improve the property and raise rents. After 18 months, the bank loan converts to a fully amortizing loan, and the seller financing is paid off.
What Happens Next
You upgrade the property, increase rents, fill vacancies — and within 18 months, the NOI (Net Operating Income) increases enough to justify a new valuation of $2.4M.
You refinance:
New Loan (80% of $2.4M): $1,920,000
Pay off:
- Initial bank loan: $1,600,000
- Seller loan: $300,000
Leftover: $20,000 in cash back to you at closing.
You’ve executed a full turnaround without partners.
You controlled the asset with just $100K.
The seller helped you get the deal done.
Why It Works
This structure is a win-win.
Sellers are often willing to help bridge the gap — especially if the alternative is a lower sale price or no sale at all. And for buyers, it’s a way to move fast on a rare opportunity without giving up control or equity.
So next time you come across that deal you’ve been waiting for, and you’re short on cash — remember: you can still make it happen.
Let’s talk about your next deal.
Lance Langenhoven
Head of Commercial Lending
[email protected]
Frequently Asked Questions
Q1: What if I don’t have the full 20% down payment for a commercial property?
A: You can combine a bank loan and seller/owner financing so you don’t need the full down payment upfront.
Q2: How does owner (seller) financing work in this scenario?
A: The seller lends you the shortfall for a set period (e.g., interest-only for 18 months) while the bank covers the main loan.
Q3: Why is this combined structure advantageous for both buyer and seller?
A: The buyer moves fast on a deal with less cash, while the seller facilitates a sale that might otherwise stall or get a lower price.
Q4: What happens after the interest-only period ends?
A: You renovate or improve the property, increase its value (NOI), then refinance so you can pay off the seller note and move to a fully amortising loan.
Q5: Is this strategy only for U.S.-based investors or for foreigners too?
A: While the article focuses on U.S. commercial deals, the service provider also works with foreign nationals and expats for U.S. real estate financing.
