Looking at buying a warehouse, SELLER FINANCING ONLY!
The price for the unit isn't bad, but the seller is offering 20% cash down, 30 year amortization, 15 year balloon, can't prepay the mortgage for 5 years, and 8% APR. If I sell the unit within  5 years, I can reassign the mortgage, but he won't allow me to pay it off without paying the remaining interest up until the 5 year period, even in the event of a sale.

&amp;#x200B;

Like I said, I like the price on the unit, but I'm not sure if these terms are fair or not. Can anyone give me some advice, or at least give me an idea of a fair counter offer? Thanks in advance.
[{"id": "ia5sekt", "text": "Pros: Good leverage and term/amort. \n\nCons: High rate and stiff prepayment penalty. \n\nNeutral: Loan is assumable (possibly a pro depending on property)\n\nIs the loan full recourse? \n\nSome info on the property would help better answer your question. What\u2019s the purchase price? How many sq ft? What is the property age and condition? What type of construction? What region/nearest major city? Anything special? (Docks, high clear heights, high voltage, rail access, etc.)", "replies": [{"id": "ia5t3jx", "text": "South Florida, Broward County (crazy market), 2200sq ft., purchase price is 430k, building is about 20 years old. It's all CBS block, 18ft ceilings.  Not near any rail or anything, but that's not really important down here. It's right off the highway, which is nice. No dock. Normal 12 foot roll up door. \n\n&amp;#x200B;\n\nI think the price is fair based on the market, I'm really more concerned about whether I should be paying an 8% interest rate, and if I can negotiate down the prepayment. I could buy this property in cash, but I like the idea of not tying up so much capital as I launch a new company.", "replies": [{"id": "ia5ttw6", "text": "What are you going to use the property for? (investment or owner-user) \n\nAlso is the sellers loan full recourse or non-recourse?", "replies": [{"id": "ia5u9lm", "text": "I'll be using the property as owner use, (my new business).  We didn't negotiate on whether or not the loan will be full recourse or not. I probably wouldn't agree to anything other than him repossessing the warehouse to satisfy the debt.", "replies": [{"id": "ia5yyv4", "text": "That would be non-recourse. But keep in mind full recourse only comes into play if they foreclose on the property and it sells for less than the loan amount at auction. In that scenario they could pursue you personally for the difference. \n\nA startup can be an uphill battle for SBA 504 depending on the nature of the business and how supported the projections are. Whether not a bank/credit union would do a conventional non-SBA loan depends primarily on your cash flow. If you have outside income or say $1MM+ in liquidity, they should. \n\nNon-SBA you could expect a 5-7 yr term; 25-yr amort; 70%-75% LTV; full recourse; 4.75%-5.25% fixed rate; and no prepay or a light prepay (e.g. 3-2-1-0-0, waived if you sell the property). \n\nIf you can go SBA you end up with two loans. One from a bank at 50% LTV and one from the SBA at 20%-40% LTV. The SBA loan would be a 25-yr. fixed rate/25-yr amort in the low to mid 5s; full recourse; 10 year prepay that\u2019s a little weird (look it up) but it essentially starts around 3% and burns down to 0%. The bank loan would mirror the terms above except they\u2019ll normally do a 10-yr term with a rate reset at year-5. This way when the bank loan matures, your prepay has ended on the SBA loan and you can refinance into one loan. \n\nIf you can\u2019t qualify for SBA or bank debt, the seller\u2019s offer becomes pretty attractive. I would counter with a 24-month prepay and be willing to trade off on any other deal point besides rate. Once you have 2 years of business financials you should be able to refi pretty easily with a local bank or credit union.", "replies": [{"id": "ia5ze0u", "text": "I really appreciate the response. The seller is ONLY selling if he can hold the note, so there is no option for refi or getting any other loans. I'm sure I could qualify for whatever type of loan, as I have an 835 credit score, ample income, and 2M+ in assets. \n\n&amp;#x200B;\n\nI was going to try and get it down to where I can pay it off after 3 years, and maybe 7%. The APR does seem a little high to me, along with the mandatory 5 year period of making payments. If he doesn't budge, would you walk away from this deal?", "replies": [{"id": "ia6q385", "text": "There\u2019s a price at which 8% makes sense. I\u2019d negotiate price.", "replies": [], "depth": 7}, {"id": "ia6ytml", "text": "That\u2019s a little unusual to see a seller force their note. I would focus on getting a shorter prepay. 7% vs 8% isn\u2019t huge over only 2-3 years. The shorter you can get the prepay, the sooner you can refi into a lower rate. \n\nWould I walk? Hard to say given the owner-user aspect, but I would look at it from two perspectives. \n\n1. How important is this particular location to the success of your business? Does this property improve your margins or odds of success or would any property do? \n\n2. What are your other property options? You can easily quantify how much you save by buying a different property with bank debt. Would the cost savings be worth it? That\u2019s a personal question only you can answer.", "replies": [], "depth": 7}, {"id": "ia71aeh", "text": "Also, if you do move forward with the seller-carry note, get a good real estate attorney to review the loan docs and help you negotiate the finer points of the loan agreement if needed. \n\nGetting an appraisal is optional. Commercial appraisals are $3,000-$5,000. If you feel confident in your value research, I wouldn\u2019t be afraid to skip it. \n\nNo matter what, I would get a PCR and desktop ESA.", "replies": [{"id": "iatntb3", "text": "Okay, so I countered at $425k, at 7% and I can pay it off after year 4 with no penalty.  Keeping my fingers crossed. Thank you so much for all your advice. I have one of the sharpest and best real estate attorneys in the tri-county area in my corner. It's an attorney I've worked with on many cases over the years.", "replies": [], "depth": 8}], "depth": 7}], "depth": 6}], "depth": 5}], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "ia5x0of", "text": "Have you considered an SBA 504 loan?", "replies": [{"id": "ia5xk3z", "text": "The seller won't accept it. He is only willing to sell if he can be the note holder.", "replies": [{"id": "ia6mwuy", "text": "Is the price sufficiently discounted for the high rate with balloon payment?\n\nLook at an amortization table, after 15 years, you will still owe a fair bit at 8%.\n\nHe is looking to have his cake and eat it too", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "ia6jdut", "text": "Sounds like the seller wants the cash flow for the next 5 years.\n\nI\u2019d ask about a lower rate, but keep the payments the same, just pay down the principal faster. \n\nAs long as that doesn\u2019t kill your business plan, it may give you and the seller something you want.", "replies": [], "depth": 1}, {"id": "ia7935y", "text": "What are your other options.. if none does it matter what his terms are?", "replies": [], "depth": 1}]