Over 55% of all investment real estate owned in the US is owned by a ‘Baby Boomer’, those who are currently between 60-80 years old.
With many of these reaching the point when they are ready to be done owning and supervising real estate, they are ready to sell but they are:
- Reluctant to give up the income stream
- Reluctant to pay the substantial taxes from years of Cap gains
Enter the solution: Seller finance.
What Is Seller Financing
The term ‘Seller Financing’ can take the form of several different methods.
- Master Lease
- Sales Installment
- Sale & Mortgage
Essentially, seller financing is exactly what it sounds like: the seller acts as the bank and the buyer delays paying for the property in full until a later date.
In a typical seller-financed deal, all terms are negotiable.
- A negotiated purchase price
- The amount of down payment from the buyer
- The interest rate paid
- Repayment terms and amortization schedule
- The method of security
Seller Financing Structures
Seller Financing Structures
Not all seller-financed deals look the same. Retiring owners often choose structures that balance income, security, and flexibility.
1. Master Lease
This structure takes the form of a comprehensive lease, that usually gives the buyer the right to purchase the property at a later time. The buyer pays all taxes and has full control over the property.
2. Sales Installment Agreement
A Sales Installment takes the form of a traditional sale, where title is checked, prorations are completed and leases assigned. A document is prepared and signed similar to a mortgage, where the terms of payment for the property is laid out.
The differential is that with a SIA, a deed is prepared, but held in escrow with the seller’s attorney, and not recorded, until the buyer fully pays off the property at the end of the term.
This means that the seller can easily take the property back if the buyer defaults, rather than going through the much longer and arduous process of a foreclosure.
- This method is also the most beneficial for the seller’s taxes, as the ‘Capital Gain’ portion of the sellers sale can be spread out over years, as the buyer makes payments, thereby allowing the seller to delay Capital Gains and Sometimes keeping them in a lower tax bracket (15% vs 20%).
3. Sale & Mortgage
This takes the form of a traditional sale, as the same process is followed, and the deed is transferred to the buyer. The seller them prepares and records a mortgage & Note, just like a bank would for the property sale.
This method is more in favor of the buyer, as they hold the deed, and the seller would need to foreclose to take the property back. There may be a reason a seller would prefer this however, for tax planning or other reasons.
Loan Terms
The terms for seller financing can be for a full amortization schedule, or can be paid off with a balloon payment after only 5-7 years. Often for older sellers, holding a mortgage for 25-30 may be outside their lifetimes, and they may prefer a payoff only 5-10 years in the future.
Partial Seller Financing
The buyer uses a bank loan for part of the purchase and the seller carries the rest. This reduces risk while still generating income.
Why Seller Financing Appeals to Retiring Owners
Baby boomers own properties they often bought decades prior, with low basis, strong cash flow, and little or no debt. That combination makes seller financing possible and attractive.
1. Steady, Predictable Retirement Income
Instead of exchanging a property for a lump sum that must be reinvested, seller financing converts equity into a monthly income stream without the need to be reinvested.
Since they have owned the property for years, they are often comfortable with continuing to earn income from the same property, just in a different format.
- The key to establish here is trust- that you will run the property well and deliver on your word.
2. Higher Sale Price and Better Terms
Buyers often pay a premium for seller financing—especially in tighter credit environments.
Why? Because seller financing can:
- Reduce bank hurdles
- Speed up closings
- Allow flexible terms with interest rate, length and more being negotiable.
- A seller held second lien can also be an option, if a bank in first position allow it, which decreases the cash a buyer needs to bring to closing.
Sellers can frequently negotiate:
- Higher purchase prices
- Terms they like for repayment
- Interest rates above current savings or bond yields
- Prepayment Penalties if the loan is paid off sooner than they would like
Risks-and How Retiring Sellers Manage Them
Seller financing isn’t risk‑free, but the risks are manageable.
Smart retiring sellers protect themselves by:
- Requiring meaningful down payments
- Qualifying the buyer carefully
- Using conservative loan‑to‑value ratios
- Securing the note properly with legal documentation
For the Buyer:
For most buyers, there is no doubt that seller financing can make an attractive deal. The question is, ‘How to get a seller to agree?’
The answer we have found in our experience is:
1. Trust
Without a doubt, turning over a property that the seller has held for many years can be a real struggle.
The best way to address a seller’s concern is to establish a quality reputation, spending some time to get to know them and lay a trust foundation. References can certainly help, especially if you have a common connection.
2. Education
Many sellers have heard horror stories and as a result put this into the ‘Don’t do’ bucket. However, spending the time to educate them about the benefit to them will help to overcome this. The verification from their attorney and CPA as well is the ultimate confirmation that it would be a move in their favor, and allowing them time to verify what you provide to them is the confirmation.
Final Thought: Turn Equity Into Income
For baby boomers retiring from real estate, the question isn’t just how to sell—it’s how to transition wisely.
And for sellers who spent decades building equity the slow way, that kind of outcome feels like a well‑earned reward.
We have assisted many clients through the seller financing journey, which produces a result that is a win-win on both sides of the table. If you are considering selling a property through seller finance and would like to discuss the best strategy to maximize your hard-earned return, CONTACT US to set up a meeting.
