Should we owner finance a $5M property and if so what would be a good starting point for terms/interest rate/down payment etc?
We have had a land lease with the same tenant for probably 30 years and he has become a family friend. He runs a motel on the property and has always been in good standing as far as rent goes. We were recently approached by someone who ended up making an offer for 5M for this property. Our tenant's lease gives him right of first refusal in such an event and we would be more than happy to sell to him, but he has expressed that he's not sure he can do 5M. Would offering to owner finance be a bad idea? If not, any suggestions on what terms should be? We have an attorney, but none of us have any experience selling anything of this value. Not sure if Owner financing is a horrible idea or not or how it would work. 

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Thanks for any feedback.
[{"id": "irz0t2x", "text": "Owner financing is a great tool for both parties. Your situation sounds like the perfect situation to use it, honestly. Any decent RE attorney will be able to write you a fair agreement. \n\nI have a clause in my agreement where a balloon payment is due after 5 years of financing\u2026basically allowing the buyer time to build equity and refinance their loan on the 5th year.", "replies": [], "depth": 1}, {"id": "irz14wu", "text": "Is it a bad idea? That depends on your goals and needs. It sounds like you'll have a large taxable event with the sale. You would probably want to evaluate the tax hit and make sure you'll at least get a sufficient down payment to cover it. The tax is due as if you didn't loan a big chunk of the sale price back to the buyer. If a 1031 tax-deferred exchange is your goal, that becomes challenging without you injecting cash to the deal.   \nA bank is going to want 25-40% down, \\~6-7% interest, and 20 or 25 year amortization. Also 0.5-1% origination fee. You could probably get away with less down (depending on first paragraph), but I certainly wouldn't be offering a below market interest rate in this environment. Imagine wanting to buy a new home or taking on any new debt at 7-10%, while your friend only pays you 5%. You could offer 30 year amortization to get yourself a good rate but keep payments somewhat down.\n\nFind a local escrow company that will service private notes. There's a small recurring fee, but especially if things go south, its best to outsource the loan admin.", "replies": [{"id": "is4dl98", "text": "\u201cThe tax is due as if you didn't loan a big chunk of the sale price back to the buyer.\u201d\n\nI believe seller financing falls under installment payments per the IRS and taxes are only paid on the payments you receive each year, not the total gains all at once.", "replies": [{"id": "ishtt1m", "text": "Yes, but be sure to get a large enough downpayment to cover intial capital gains tax due on the share of the calculated gain for the first installment portion AND the tax due based on depreciation recapture which may be 25% of the whole thing at time of sale if I recall correctly from last time I researched installment sales. But the ability to push taxes out over the installment period while earning interest (taxable) is attractive especially in this market.", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "irzcv09", "text": "Couldn't be a better time or situation to do owner financing IMO. \n\nI'd usually do 10% down, market rate interest. Typically would have a 5/10 yr balloon, but if I were you I'd want to keep them in this deal as long as possible assuming 7% interest.", "replies": [], "depth": 1}, {"id": "irzd5jp", "text": "All depends what you think is fair, do you have an exit plan? Will this be a 1031 exchange? \n\nIn terms of the offer you can have him do 15% down 750k and you carry the other 15% 750k at a 10% interest. Basically your the bank and covering the other half for him to get a commercial loan. \n\nIf you he is your family friend you can maybe give a better interest off the 750k your carrying maybe just 3%.", "replies": [], "depth": 1}, {"id": "is1rj1f", "text": "How much term left on the ground lease?  Once the lease term ends you can keep or sell the motel // make the rent what ever you want.  Provided that isn't something addressed otherwise in the lease.\n\n&amp;#x200B;\n\nIf it's a family friend you should realize that the interested party will take this motel eventually.", "replies": [], "depth": 1}]