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Owner financing is a very common real estate purchase structure which has really come into the forefront of buying and selling in a buyers market. So I decided I would put together a quick overview of what owner financing is, since most buyers, sellers and even real estate professionals are usually unfamiliar with the term and the types of contracts involved. Remember structuring owners financing deals works for all types of real estate transactions big and small; home or commercial buildings.

Owner Financing Overview:

Owner financing is when all or part of the agreed upon purchase amount is held by the seller. I always tell people to look at it in the terms of a bank, the seller is holding the financing in the same way a bank would. The seller receives the monthly payments based on an agreed upon rate and term with a future balloon date for full pay off. This type of real estate transactions is very common in a buyer’s market like we are seeing now, and even more common now that lenders have tighten their underwriting guidelines and or have completely stopped lending. These sets of circumstances have created a smaller buyers pool, however the amount of property owners that still want and need to sell is still there. Seller financing can be a great way to bridge the gap between buyers and sellers.

Owner Financing Term Length:

The length of an owner financed property can differ between the time lines of both the buyer and seller. Almost all owners financed monthly payments, no matter if they are commercial purchasers or home purchases are amortized over 30 years. A typical contract balloon term is a minimum of two – three years, since 24 months is a key number for most lenders to see that you have been making on time payments on this property before lending on the buyers purchase/refinance of the owner financed contract. In addition it allows the buyer to clean up any credit or financial issues that are dragging them down from buying, if that is the buyer’s personal situations. But what is even more important in this market is that allowing the financial lending markets to stabilize and open back up. This has been the major factor for owner financing.

We have been structuring the length of our owner financing contracts out a minimum of three years with three, one year extension options. This brings the full possible balloon payment out to 6 years, if needed. This is simply because we need to make sure we give enough time for those financial lending markets enough time to rebound and starting lending again. In addition we have had owners request longer terms because of the huge tax benefits that a longer term brings, we will get talk about that subject on another article.

Down Payment or No Down Payment:

The subject on providing a down payment on the owner financing contract is always a sticky one. From the sellers stand point they usually want as much down payment as possible, why? Because, if the buyer has some “skin in the game” they are less likely to walk away from the property and contract. From the buyers stand point they always want to come in with as little a down payment as possible, thus limiting their risk.

Personally from my experience and many others I feel that most sellers should accept a smaller down payment if one at all. I know… I know what you are thinking… WTF, why would I take the risk? My point of view comes from the simple fact that if a buyer has circumstances come up that they can no longer make payments on the property, they are still going to walk away if needed, regardless of having a down payment or not. Yes…yes… I know having a down payment would at least be some kind of compensation to the seller. However from my stand point I would rather receive a few thousand dollars from the buyer and allow him/her to keep any additional monies for reserves and repairs on the property, because they do and will come up. You see from my experience if someone runs into a tough financial spot, I would rather them have reserves that can float the payment until they get back on their feet vs. being tapped out of funds day one after buying a property.

This goes for both residential and commercial real estate. Maybe even more so for commercial real estate since there is a high volume of repairs, maintenance and normal unit turns which having a reserve account is a must have to be successful. And the best thing is that you can always have compensating factors for low to no down payments such as higher interest rate and or higher balloon payoff.

Interest Rate:

This is one of the reasons I love owner financing. It allows sellers to charge a higher interest rates thus possibly receiving monthly cash flow from the property. If there is a mortgage on the property it is very normal depending on the type of real estate to charge an interest rate to the buyer that is higher then what is currently being charged by the bank. We have seen rates all over the board including interest only payments, staggered payments and payments that are equal to the current underlying mortgage payment from the bank. The key is to at least cover the current mortgage payment on the property if there is one.

Expenses:

Make sure that it is written into the contract specifically stating who covers what expenses and repairs. Normally since the buyer is purchasing the building that they cover all expenses related to the property just like an owner would. I have however, seen contracts where the seller has to cover major repairs and OK any remodeling of the property. This is because the seller still has ownership interest of the property and cannot let it go into disrepair or remodeled to a point that does not do the property any good. I always prefer to have the buyer pay everything and just notify me when upgrades or remodeling is going to be done.

Most universities today offer the Masters in Finance as an option within the structure of the MBA program. Schools of business usually have several areas of concentration to choose from in the second year of a two year, full time MBA course of study. At most schools the most popular major for the MBA is Finance. The list of schools below all include finance as an MBA option and in some cases offer additional graduate level options for degrees related to finance, either within the context of corporate operations or as an analytical profession. Some universities offer a Masters in Financial Mathematics for students interested in the complexities of analytics or in a PhD program that specializes in the technology of business finance. The schools listed below all have degree programs designed for career advancement in the business world.

New England College of Business and Finance has been in existence since 1909 when it was founded as the New England Banking Institute. Over the years it has evolved from a finance training institution to a full fledged degree granting college accredited by the New England Association of Schools & Colleges. The Master of Finance degree includes eleven advanced courses that cover International Finance, Applied Quantitative Methods, Enterprise Risk Management, Portfolio Management and several other areas of the academic discipline. The college has a solid background in educating aspiring professionals in the banking and finance industries.

Baker College offers the online MBA in Finance with a program that includes thirty three credit hours devoted to business studies and an additional twenty credit hours for classes in the finance specialization. Among the business core courses are classes in Research & Statistics for Managers, Accounting for the Contemporary Manager and Management Information Systems, so the analytic tools and IT requirements for a Masters in Finance are covered in the first section of the program. Advanced finance classes include Public Finance and International Business Finance.

University of Liverpool has ventured into the international online education field with its online MBA program. Since the program was accredited by the European Foundation for Management Development it has developed a student body drawn from over 175 nations. The MBA in Finance and Accounting is delivered in modules, with each module consisting of classes that increase in complexity. The University provides e-books or printed textbooks at no charge. Finance modules include Investment Strategies, Financial Reporting, Business Finance and Advanced Managerial Accounting.

Kaplan University offers an online Masters of Business Administration with specialization in Finance that can be completed in one year of full time study or two years of part time study. The curriculum includes mergers and acquisitions, international business finance, foreign exchange risk, hedging strategies, and global positioning of assets. Kaplan also offers a MBA in Entrepreneurship that delves into the creative sources and uses of capital involved in a startup.

Northeastern University offers a MBA in Finance online through its School of Business. This area of concentration covers mergers and acquisitions, licensing, joint ventures, and IPOs from a management perspective. There is also a MBA in Entrepreneurship that includes some of these advanced courses. In addition Northeastern offers an online Master of Science in Finance that focuses entirely on the complexities of accounting and finance, quantitative and modeling methods, and international finance structures for global businesses.

It doesn’t matter what kind of industry a business is involved in: there is always the potential to be held liable for some incident or another – especially in this sue-crazy society. You never know what kind of claim your company might be faced with, whether it’s due to alleged negligence or wrongdoing. Depending on where you live, you’re probably required to have at least basic commercial business liability insurance.

There are different levels of Commercial General Liability and you need to learn the difference between occurrence-polices and claims-made policies. The former covers claims as long as the events regarding the claim occurred during a specific time period. The latter provides coverage over a specific period of time, EVEN IF the event occurred prior to the purchase of that coverage.

Some insurance companies offer business policies that cover specific types of liabilities based on the industry. If you’re a tech consultant, for instance, and don’t have much physical property, then you’ll want electronic data protection as part of your policy. For some professionals and tech businesses, electronic data is even more valuable than infrastructure or office furniture.

There are free quotes and consultations out there to help you obtain the best (and most affordable) commercial business liability insurance possible. The quote will vary depending on the type of industry you’re involved in, size of business, location, state, previous claims history, and other factors. It’s important that you take the time to fully assess your risk exposure and then buy a policy that will best protect you, as coverage may be capped as a specific dollar amount for the specific policy period.

Commercial Business Liability Insurance for IT Professionals

Even if you’re an IT professional and don’t use your own equipment, yet have access to your clients’ equipment, you might want to consider liability insurance to protect you just in case you accidentally damage the equipment, or get accused of any losses regarding the equipment.

On the other hand, if you are a business owner and have some employees, most states require you to have some kind of workers compensation policy. The minimum number of employees varies by state. This type of policy protects employee(s) if they become ill or suffer an injury while on the job. It usually DOESN’T cover non-traditional employees such as volunteers or interns.

For those involved in the advertising / marketing / journalism industries, there is copyright infringement, libel, slander, etc. to worry about. Some business insurance policies cover this.

Once again, you must look for a quote that covers the type of coverage you need for your specific business and industry. The best place to begin searching for the right commercial business liability insurance package is with Hiscox. In addition to excellent, custom policies, Hiscox Insurance offers the tools and tips to help you make your decision.