Commercial Real Estate Investment/Seller will carry our note



We are in negotiation for a mix-use commercial property.  The property is located on a peninsula.  Price tag is 900k.  Up stair of the property is a residential unit and down stair is a restaurant.  We plan to live in the residential unit.

The restaurant is not well established but the lease  runs till next summer. So, seller is willing to guarantee lease till next summer and leave the fund in escrow.  

We are planning to put 200K down, and seller will carry the note for us at 5.75%, base 20 year amortization, due in 10 years.  Is this a decent deal?  This is our first time dealing with commercial loan and we have not checked with other commercial lander yet.  The reason why we are considering seller's loan is because he does not require 35% down like most commercial lenders.  Am I correct?  Is his interest rate too high?  Being able to put only 20% down give us 100k as reserve in case anything happens to the restaurant and we need to find a new operator.

Although we have two duplex on our own and have experience in purchasing properties, we are not sure how we should evaluate the commercial loan offering.  

Also, if seller carry the note, do I just trust the escrow company to do all the work or I should still hire a lawyer to review all the documents.  We do work with a loan broker who did all our regular residential loans.  can we pay her to review our loan doc instead of a lawyer?

Thank you for your help.

 I just received this query. Let me know what the status is please.

  I would hope your residential loan broker would tell you that you should hire a title lawyer
to handle all the loan docs. That being said 5.75% with 25 year amortization seems fair, the rate with a bank would probably be a 5 year term loan at 4.75%.
 That said you need to know what conveys if the restaurant doesn't make it. If it is a turn key then your odds on renting are much better. Do you have a copy of the restaurant lease? Send it to me and I will let you what questions you should ask and what pitfalls you should be wary of in the future. Also, you want to review the insurance. Is it carried by the landlord for the building and is there a separate policy for the restaurant. Also, make sure the Liquor license is in good standing and check for debts or liens on current restaurant.
 There are other questions surrounding this deal but these are a start. Good Luck TC  

Commercial Real Estate Investment

All Answers

Answers by Expert:

Ask Experts


Terrence Cullen


Questions concerning financing of commercial properties.


Fannie, Freddie, FHA, and conduit versed lender for over a decade.

St. Joseph's University, American University, and numerous corporate funded classes and seminars concerning HUD 220, 232 and 221d4 and Fannie, Freddie, and conduit lending.

©2016 All rights reserved.