Contract for Deed

Contract for Deed

Over the last eight years a question I hear at least once a week is, “Will your seller accept a contract for deed?” The agent or prospective buyer is asking if the seller will finance the sale of their own property in a creative arrangement.

In other words, the buyer is asking the seller to accept a sale arrangement that forgoes a 100% cash payment at closing (from the buyer or combination of buyer and lender) and instead sets up an installment payment schedule with a full payment balloon at some point in the future. Usually around 3 to 5 years. At that time the seller will sign over the deed.

Buyers like this scenario because does not involve a bank financing process, usually involves a lower down payment than a traditional deal, and allows them to build equity in the property before utilizing a traditional lender at the balloon period. If things get bad the buyer simply gives the property back to the seller.

Sellers may like a contract for deed as it may have advantageous tax consequences and can provide positive cash flow even with a loan in place.

Contract for deed are a great method of purchasing a property as long as the buyer and the seller keep their word for the length of the contract, nothing bad happens to the property over that course of time, the buyer operates the property in at least in the same level of care as it was in at the time of purchase, the seller continues to pay any remaining mortgages, and the buyer and seller do not allow any encumbrances on the property not previously agreed to.

In other words I strongly discourage my sellers to entertain this method of purchase!

Have additional questions? Call Nick Gustafson at 605-201-2809. Learn more about Nick here. Check out Bender Commercial here.  

Survival Guide to the 2012 Sioux Falls Office Market

Sioux Falls currently has approximately a 6.5 year supply of office space vacant and on the market for lease as we start 2012. If you are a tenant this is great news. If you are an owner of a multi tenant office building you, this could be a value killing environment.

Perhaps you have several more vacant suites/spaces than usual. If you are lucky enough to be fully occupied, you have more than likely had a tenant or two try to renegotiate their lease ahead of a pending expiration date. Most commercial property owners have a mortgage and bankers demand payment in spite of one’s cash flow situation. Regardless of your situation, it is a tough time to own a multi tenant office building.

However here are some survival tips in order to minimize your vacancy and maintain your property’s value even in the toughest of times:

Have a good relationship with your tenant.

This increases your chances of keeping a good tenant or at least having an open dialogue about their long term plans. Little things go a long way. Responding immediately to maintenance and management issues, knowing the names of their kids and what is happening in their lives. Never underestimate the power of a relationship. If a tenant likes you and is happy with the property they are more likely to stay.

           

            Maintain your property.

                        It is time consuming and expensive to maintain an office building. The

exterior and interior will need periodic updates to keep the property competitive and attractive. You might get away with that 80’s era landscaping and 15 year old common area carpet in a landlord’s market, but when times get tough, tenants have options and will leave a dated building in a heart beat for a better maintained building upon lease expiration.

Take a commercial real estate agent out to lunch for some advice.

            Self serving? (Hint: I prefer Minerva’s or Jimmy John’s for a quick business lunch.) I have been involved in so many situations over the last 8 years where an office building owner didn’t get professional advice and it cost them big money. I’m talking up to a million dollars in losses simply because they didn’t have a professional opinion that they could have gotten for the cost of a cup of coffee or a sandwich. (I cost a lot more than that for a completed transaction!)

It’s a competitive world out there right now. Your building has competition. Be sure to position your asset in the best possible light.

  

Learn more about Nick Gustafson. Or give him a call at 605.201.2809.

Welcome!

Welcome to South Dakota Commercial Real Estate Blog!

My intention is to give you the reader an accurate, informative daily update on the South Dakota Commercial real estate market. This blog will contain thoughts and observations as I broker South Dakota Commercial Real Estate.  I live and breathe South Dakota Commercial Real Estate as I've been brokering leases and sales for the last 8 years. I have the good fortune to work for Bender Commercial Real Estate, a market leader in the Sioux Falls market. Here is a little bit about me here: Nick Gustafson's Profile Check out Bender Commercial Real Estate at benderco.com.