I closed a 12-unit building two years ago with $0 from a bank. No commercial loan. No SBA product. No hard money. The seller carried the entire note.

The purchase price was $620,000. The terms were 20% down, 5.75% interest, 20-year amortization with a 7-year balloon. My monthly payment was $3,580. The building was cash flowing $2,100 per month above debt service from day one.

No loan origination fee. No appraisal fee. No 6 weeks of underwriting. We closed in 22 days.

That deal changed how I look at every acquisition. And the crazy part is, most investors never even ask the question.

What Seller Financing Actually Is

Seller financing means the seller of the property acts as the lender. Instead of getting all their money at closing from your bank, they receive a down payment and then you make monthly payments to them, just like you would to a bank.

The seller holds a promissory note secured by a deed of trust or mortgage on the property. If you default, they foreclose, just like a bank would. The mechanics are identical. The difference is who's on the other side of the loan.

This isn't some creative finance trick from a late-night infomercial. Seller financing has been part of commercial real estate for decades. It's a legitimate, common deal structure that sophisticated buyers and sellers use every day. Most investors just never learned to ask for it.

Why a Seller Would Agree to This

This is the first question I get. "Why would a seller carry a note when they could just take cash at closing?"

Great question. Here are the real reasons.

Tax deferral. This is the big one. When a seller takes all proceeds at closing, they owe capital gains tax on the entire gain that year. If they have owned the property for 20 years and their basis is $200,000 on a $700,000 sale, that's a $500,000 gain. At combined federal and state rates, they could owe $100,000 or more in taxes that April.

With an installment sale, they spread the gain over the life of the note. They only pay capital gains on the principal they receive each year. A seller who carries a 10-year note on a $500,000 gain might pay $10,000 to $12,000 in capital gains per year instead of $100,000 all at once. That's a massive difference for a retired seller living on fixed income.

Steady income stream. Many sellers, especially older owners who are retiring, don't want a lump sum sitting in a savings account earning 4%. They want predictable monthly income. A seller-financed note at 5.5% to 7% gives them a better return than most fixed-income investments, secured by real property they already know and understand.

Speed and certainty of close. Bank financing falls apart. Appraisals come in low. Underwriters find problems. Seller financing eliminates the bank entirely. The seller knows the property better than any appraiser. If they're comfortable with your down payment and your ability to operate, the deal closes. No third-party risk.

Marketability. A property that has been sitting on the market for 6 months with no offers might get 3 offers in a week if the seller offers financing. It dramatically expands the buyer pool, especially in a high-rate environment where bank debt is expensive.

How to Structure the Terms

There's no standard seller financing deal. Every term is negotiable. That's both the beauty and the danger of it. Here's how I approach structuring.

Down Payment

Sellers typically want 10% to 25% down. The more you put down, the better terms you can negotiate on rate and amortization. A seller who gets 25% down sleeps well at night because they have significant equity protection if you default.

I have done deals at 10% down. I have also done them at 30% down when the rate and terms made it worth it. The down payment is a lever. Use it.

Interest Rate

Seller financing rates are negotiated, not dictated by the market. That said, sellers aren't stupid. They know what their money could earn elsewhere.

In the current environment, expect 5% to 7% on most seller-financed deals. Some sellers will go lower if the down payment is large or the buyer is strong. I have seen rates as low as 4% and as high as 8%, depending on the negotiation.

The key insight: even at 6.5%, seller financing often beats bank debt because there are no origination fees, no points, no appraisal costs, and no underwriting delay. When you factor in $15,000 to $25,000 in saved closing costs, the effective rate is often lower than what a bank quotes you.

Amortization and Balloon

Most seller-financed notes use a longer amortization with a shorter balloon. Common structures:

20-year amortization, 5-year balloon. Lower payments, but you need a refinance-decision-framework) or exit strategy within 5 years.

20-year amortization, 7-year balloon. My preferred structure. Gives you enough time to stabilize, improve, and refinance with seasoned financials.

25-year amortization, 10-year balloon. Best for stabilized properties where you want to hold long-term.

Fully amortizing, 15 to 20 years. Rare but incredible when you can get it. No balloon. The note pays off completely.

The balloon is the risk. When that balloon comes due, you need to either pay it off, refinance with a bank, or negotiate an extension with the seller. If the market has tanked or rates have spiked, refinancing might be painful. Always have a plan for the balloon before you sign the note.

Prepayment

Negotiate for no prepayment penalty. Some sellers will want a penalty because early payoff means their income stream stops. Push back on this. You need the flexibility to refinance if better terms become available or to sell the property without restriction.

If the seller insists on a prepayment provision, negotiate a declining penalty. Something like 3% in year one, 2% in year two, 1% in year three, and none after that.

When to Ask for It

Not every seller is a candidate. Here are the situations where seller financing is most likely to work.

Long-term owners with low basis. An owner who bought the building 20 years ago for $150,000 and is selling for $650,000 has a massive capital gains problem. Seller financing solves it. Lead with the tax benefit.

Tired landlords. The owner who's done managing but doesn't need the cash. They want out of the day-to-day but still want income from the asset. Seller financing lets them keep the income stream without the management headache.

Properties with deferred maintenance. Banks hate deferred maintenance. A property that needs $100,000 in work might not appraise. A seller who knows the property can finance the deal at a price that accounts for the condition, where a bank would simply decline the loan.

High-rate environments. When bank debt is at 7% or higher, seller financing becomes a competitive advantage. You can often negotiate rates 50 to 150 basis points below market because the seller isn't a bank. They don't have the same overhead or regulatory requirements.

The Conversation

Here's how I actually bring it up. I don't lead with "will you carry a note?" That sounds like you can't get a loan.

Instead, after we have discussed the property and I understand the seller's situation, I say something like:

"Based on the price you're looking for and the current lending environment, I want to make sure we structure this in a way that works for both of us. Have you considered carrying a portion of the note? Given your ownership history, there could be significant tax advantages for you, and it would allow us to close faster with fewer contingencies."

Frame it as a benefit to them first. Because it's.

Protecting Yourself

Seller financing isn't a handshake deal. You need proper legal documentation.

Promissory note outlining all terms: rate, amortization, balloon, payment schedule, default provisions, prepayment terms.

Deed of trust or mortgage recorded with the county, giving the seller a secured lien on the property.

Title insurance for both buyer and seller.

An attorney who has closed seller-financed deals before. Not your cousin who does estate planning.

Also, get a third-party loan servicing company to handle the payments. It creates a clean paper trail, sends proper 1098 forms for interest deduction, and prevents any disputes about payment history. This costs about $25 to $50 per month. Worth every penny.

The Deal Most People Walk Past

Seller financing isn't a workaround for buyers who can't qualify for bank loans. It's a legitimate deal structure that can give you better terms, faster closes, and more flexibility than conventional debt.

The 12-unit I bought with seller financing? That building has appreciated $140,000 in two years, the cash flow has increased by $800/month after rent adjustments, and I have never once dealt with a bank on it. When the balloon comes due, I will refinance into permanent debt with a track record of performance that any lender will love.

The difference between the investors who use this tool and the ones who don't is simple. One group asks the question. The other doesn't even know it's an option.

Looking at a deal in the Omaha or Lincoln market? We'll pressure-test your numbers for free. Reach out at Tanner@TopTierInvestmentFirm.com.

Tanner Sherman is the Principal and Managing Broker of Top Tier Investment Firm in Omaha, Nebraska. He co-hosts the Freedom Fighter Podcast with Ryan of Avara Investments.

Seller Financing: The Deal Structure Most Investors Overlook