Buying a owner held mortgage on a commerical property?

Question

I have a friend that is interested in purchasing a commerical piece of property, with the owner holding the mortgage.
I was wondering if anyone had any thoughts on this topics. I do have my own being I have had expereince in the Residential Real estate market but none in the commerical end...
The concerns I have stressed to date is the property was assessed in 2007 for 99200. They have a contract for 150000.00. Which is far more then the assessment. Also taxes, and deductions, who would be entitled to them if you are paying the owner, I am sure like anything it depends on the contract. If anyone has any other information or things to think of or look for, your opinions would be welcomed. I just dont want my friend to get in over their head, although the individuals have been great people to rent from and great cleints to work with, I still think its a little pricy...Again thank you in advance for your thoughts....

I forgot to point out at nthis point there is no contract in place its just a thought they have been playing with. Again your thoughts would be greatly apprecaited...

Answer 1

I recommedj that your friend hire a real estate appraiser who is a Member of The Appraisal Institute (MAI designation) to appraise the property. The assessed value is often not an accurate measure of the fair market value of the property.

I also recommend that your friend hire an attorney who specializes in real estate law to write the offer.

I recommend that the attorney include language that makes the purchase contingent upon the appraisal of the fair market value as determined by your appraiser.

I also recommend that the attorney include language that makes the offer contingent upon your friend's approval of inspection reports of the roof, the structure, the electrical system, the plumbing system, heating system and the foundation.

If the appraiser determines the fair market value of the building to be less than the amount offered, yur friend should give the seller two choices:

Either:

1. reduce the contract price to the fair market value of the property as determined by your appraiser or

2. Agree to cancel the contract and direct the escrow company to return your friend's deposit to him.

Also, when the inpsection reports come back and show that repairs are needed, again your friend should give the seller two choices:

Either

1. make the recommended repairs or compensate for the need ed repairs by further reduciing the purchase price by at least the estimated cost of the repairs or..

2. Agree to canel the transaction and direct the escrow company to return the deposit to your friend.

If you and your friend follow the instructions that I have given you your friend will get a commercial building at fair market value and not the inflated value that people and their agents often want for their real estate.

Answer 2

This is treated like any other mortgage. The only difference is that the mortgage holder is the prior owner, not a commercial lender.

The seller would take back a first deed of trust or mortgage to secure payment just like a commercial lender would. The buyer gets title subject to the mortgage lien. The buyer gets any deductions for mortgage interest and property taxes.

The seller, being the mortgage lender, must claim the interest on the loan on their tax return. There are special tax rules on installment sales that the seller needs to be aware of. Basically an installment sale allows the seller to apportion the payments between principal (which isn't taxed) interest (which is taxed as ordinary income) and capital gains (which are normally taxed at a lower rate). Even if the capital gains are treated as short term (owned for one year of less) it gives the seller the option of spreading out the CG tax over the term of the installment sale instead of having to pay it all up front.

Consult with a real estate attorney regarding the actual sale and mortgage instruments and a qualified tax advisor -- a CPA or EA, not a store-front tax prep mill temp -- for guidance on reporting the installment sale on the tax returns and paying the resulting taxes.

Answer 3

The owner holding paper, which is what it is called when the owner holds a mortgage, is very typical in commercial real estate. Also, the value of the property is determined by the amount of money the property makes. If your friend isn't familiar with this, he should learn some basics before jumping in. He needs to analyze all of the ACTUAL (not pro forma) costs of running and holding the property, and compare that to ACTUAL (again, not pro forma) rent receipts and make sure he has a positve cash flow. There's a lot more to it, but it would be too long to go through even a small percentage of it.

Answer 4

There is nothing wrong with the owner holding the mortgage on the property. Since your friend is new at this sort of transaction, suggest you consult a very good lawyer whose work is mostly real estate and real estate law.He can advise what is included in the contract . Assessment value isn't necessarily a good indicator of selling price. Income and leases definitely are since they indicate a possible continuity of income.

Answer 5

No help from the government for procuring. To get the final advice, hit upon a unfastened own loan broker provider on your section. they are going to locate you the final deal and inform you the way a lot you could borrow. no less than, you're able to desire to make certain the non-public loan adviser at your economic company. they gained't inevitably provide you the final deal.