Seller Financing, also called an installment sale, is when you (the property owner) act as the lender for your buyer. Instead of the buyer bringing all cash or using a bank to fund the entire purchase, they give you an agreed-upon down payment at closing and sign a promissory note for the balance.
You secure that note with a deed of trust/mortgage on the property, just like a bank would.
The buyer then makes monthly payments to you, typically interest-only but can be amortizing, with a balloon payoff at a set date (often 2–7 years). You control the terms: rate, amortization, prepayment rules, collateral, and personal guarantee.
From a seller’s perspective, the upside is big.
- It expands your buyer pool, especially for assets or situations where bank financing is difficult. More competition can mean a higher price or stronger overall deal terms.
- You can close faster with less financing drama because there’s no third-party loan committee and no appraisal.
- You receive a stream of predictable income.
- Another major benefit is tax timing. With an installment sale, you typically recognize capital gains over time as you receive the principal payments rather than all at once in the year of sale. That can smooth your tax burden and keep you in lower brackets.
You still protect yourself like a lender would. You require a meaningful down payment, record a first-position lien, get a personal guarantee, and set covenants (insurance, taxes current, no secondary financing without consent). You spell out default remedies, late fees, and assignment rights. This isn’t as complicated as it sounds. The title company can normally produce this document for you.
Conclusion
Seller financing lets you sell at strong pricing, close smoothly, get a lump sum at closing and monthly payments thereafter.
For many commercial owners, seller financed deals produce a total higher return than an all-cash sale.