Seller Financing Your Florida Apartment Building: How It Works and When It Pays
With seller financing, you act as the bank: the buyer puts money down, you carry a note secured by a mortgage on the building, and they pay you monthly until a balloon payoff. It can get you a higher price and spread your tax bill, but you take on the risk that the buyer stops paying.
Seller financing comes up in almost every conversation I have with an owner who has held a building for a long time and owns it free and clear. The idea sounds great: sell the building, keep collecting a monthly check, skip the tenants. Sometimes it is exactly right. Sometimes it is a way to sell your building twice. Here is how it actually works in Florida. I am a broker, not a CPA or attorney, so run the tax and legal pieces past yours.
How does seller financing work?
Instead of the buyer getting a bank loan, you lend them part of the price. They pay a down payment at closing, sign a promissory note to you, and give you a mortgage on the building as security. They make monthly payments to you, usually amortized over a long schedule, with a balloon payment due in a few years when they refinance or sell. If they stop paying, you foreclose and get the building back.
What the terms usually look like
Every deal is negotiated, but here is what I see most often on smaller Florida buildings:
- Down payment: commonly 20 to 35 percent. More skin in the game means less risk for you. I would not go much under 20.
- Rate: often close to what a bank would charge, sometimes a bit less in exchange for a better price.
- Amortization and balloon: payments figured over 20 to 30 years, with the balance due in 5 to 7 years.
- Protections: a personal guarantee, insurance with you named as mortgagee, tax escrow or proof of payment, and a default rate.
Why owners do it
Three reasons. Price: buyers pay more when you are solving their financing problem, and with bank money tight, that problem is real. Buyer pool: a building a bank will not lend on, because of its age, condition, or size, suddenly has buyers. And income: a performing note pays you like the building did, without the toilets.
The tax angle
An installment sale can spread your capital gain over the years you receive principal, instead of taking it all in the year you sell. One catch surprises owners: depreciation recapture is generally taxed in the year of sale, even if you have not received the cash yet. If you have owned the building a long time and depreciated most of it, that bill can be large. This is exactly where a CPA earns their fee. My post on capital gains when you sell a Florida apartment building covers the rest, and a 1031 exchange is the other option to compare.
Florida costs to know about
Florida charges documentary stamp tax on promissory notes, 35 cents per $100 of the note, and a one-time intangible tax of 0.2 percent when the mortgage is recorded. Who pays is negotiable, but someone does, so put it in the contract.
Where it goes wrong
The risk is simple: the buyer stops paying, and you get the building back in worse shape than you sold it, after a foreclosure that takes time and legal fees. The other trap is an existing mortgage. If you still owe on the building, your loan almost certainly has a due-on-sale clause, and seller financing on top of it without your lender's consent can blow up badly. Vet a seller-financing buyer harder than a cash buyer: their track record running buildings matters more than their credit score.
When it beats a cash sale
Seller financing tends to make sense when you own the building free and clear, you do not need all the cash now, the building is hard to finance with a bank, and you have a buyer with real experience and a real down payment. If you need the money, or if the best buyer is a cash buyer at a fair price, take the cash. Either way, start with an honest value, because a note built on an inflated price is just a bigger loss if it goes bad. My valuation model will give you that starting point, and here is how the rest of a sale works.
