Seller financing means you act as the bank: the buyer pays part of the price at closing and pays you the rest over time, secured by the property. Investor Direct Properties buys RV parks, mobile home parks, self-storage and apartment complexes all-cash or on flexible terms, including seller financing, depending on size.
What is seller financing?
You sell the property and lend the buyer part of the price. The buyer pays a down payment at closing, signs a promissory note for the balance, and the note is secured by a mortgage or deed of trust on the property. You collect payments, with interest, until the note is paid off.
Owners search for it under several names: seller financing, owner financing and seller carry-back. It comes up most with RV parks, mobile home parks and self-storage, where bank loans can be harder to get.
Cash sale vs. seller financing
| What matters | Cash sale | Seller-financed sale | Recommended |
|---|---|---|---|
| Money at closing | The full price, less closing costs. | The down payment. The rest comes in payments. | Cash sale, if you need the money now. |
| Income after the sale | None from the property. | Principal and interest on the note. | Seller financing, if you want steady income. |
| Risk after closing | None from the buyer: you're paid. | The buyer can default; you may have to foreclose. | Cash sale, if you want a clean exit. |
| Taxes | Gain is generally reported in the year of sale. | An installment sale may spread the gain over the payment years. | Ask your CPA. It depends on your basis and depreciation. |
| Who can buy | Buyers with cash or bank approval. | Also buyers a bank won't fund for this property. | Seller financing, for hard-to-finance properties. |
Pros and cons of seller financing for the seller
Advantages of seller financing
When you sell your property, you owe tax on the gain. With seller financing, you collect that gain over the life of the loan you carry for the buyer, so the tax can be spread over those years instead of hitting all at once. You also earn interest on the note, turning your equity into steady monthly income. And offering terms can widen your pool of buyers and may support a stronger price.
Risks of seller financing
You get less money at closing, and you take on these risks:
- The buyer stops paying, and you have to foreclose to take the property back.
- Your equity stays tied to the property until the note is paid off.
- The note, mortgage or deed of trust, and any state disclosures should be drafted by your own real estate attorney.
Tax advantages of seller financing
- Spread the gain. A seller-financed sale is usually an installment sale (IRC section 453). You report each year only the part of the gain you receive, on Form 6252, instead of all of it in the year of sale.
- Possibly lower brackets. Spreading the gain over several years may keep more of it in lower tax brackets than one large year would.
- Interest income. The buyer pays you interest on the note for as long as it runs.
The limits:
- Depreciation recapture that counts as ordinary income is reported in the year of sale, even under the installment method.
- Interest on the note is taxed as ordinary income.
- The note needs adequate stated interest. If the rate is below the IRS applicable federal rate (AFR), part of the principal can be recharacterized as interest.
Sources: IRS Topic No. 705, Installment Sales and IRS Publication 537. Consult your CPA.
How we handle seller financing
Depending on size, Investor Direct Properties buys all-cash or on flexible terms, including seller financing, so you choose what works best for you. Either way, you deal with the buyer from the first call, you’ll usually hear back within 2 to 4 business days of sending your numbers, and most deals close 45 to 90 days after a signed agreement.
The structure depends on the deal. It can be a straight seller carry. If you have a low-rate loan in place, we may propose taking over that existing loan (subject-to) to keep the favorable rate.
Closing costs are negotiated. Unlike some residential markets, there's no single customary rule for who pays what.
Want to know what your property might be worth first? See how RV parks are valued.
This page is general information, not tax, legal or financial advice. Talk to your CPA and real estate attorney before you choose how to sell.
Questions sellers ask
Can I sell my RV park, mobile home park, storage facility or apartment complex with seller financing?
Yes. Depending on size, we buy all-cash or on flexible terms, including seller financing. Tell us which you prefer when you send the deal.
How does seller financing work?
You and the buyer agree on a price, a down payment, an interest rate and a repayment schedule. At closing the buyer pays the down payment and signs a promissory note for the balance, secured by a mortgage or deed of trust on the property. The buyer then pays you principal and interest until the note is paid off. If the buyer defaults, the security lets you foreclose.
What's the difference between seller financing and a seller carry-back?
People use the terms loosely. Seller financing usually means you finance most of the price yourself. A carry-back usually means a smaller note from you that sits behind a bank loan. Either way, the buyer pays you over time.
Do I still get cash at closing?
Yes. You receive the down payment at closing, and the balance comes in payments under the note. How much depends on the deal.
Is seller financing safe for the seller?
It carries real risk: if the buyer stops paying, you may have to foreclose to get the property back. The note and the mortgage or deed of trust should be drafted by your own real estate attorney.
How is a seller-financed sale taxed?
Usually as an installment sale: you report the gain as payments come in, on Form 6252, instead of all in the year of sale (IRS Publication 537). Depreciation recapture is still reported in the year of sale, interest is ordinary income, and the note needs at least the IRS applicable federal rate. Consult your CPA.
What terms do you offer?
There are no usual terms: every note is built around the deal. Payments can be a fixed monthly amount over the life of the loan, or deferred until a milestone, such as a finished expansion, to protect cash flow. Some notes start interest-only while the new owner stabilizes the property, then amortize or run to a balloon. Some sellers accept principal-only payments.
Ready to sell?
Send the deal and get an answer from the buyer, usually within 2 to 4 business days. Submit your property or see what we buy: RV parks, mobile home parks, self-storage and apartment complexes.