You sold a commercial or investment property and carried the financing. We take the note to buyers who work with commercial paper and show how each one reached their price.
What widens the discount on a commercial note.
The same worksheet comes with every offer.
| Remaining balance | $129,400 |
|---|---|
| Payments left | 168 |
| Buyer’s target yield | 8.0% |
| Purchase price | $115,000 |
| Discount from balance | 11.1% |
| Our fee | shown on every offer |
| Sell the whole note | Sell 60 payments | Keep it | |
|---|---|---|---|
| Cash today | $115,000 | $56,200 | $0 |
| Payments still coming to you | None | 108 payments of $1,140 | 168 payments of $1,140 |
| Total you receive | $115,000 | $179,320 | $191,520 |
| What you give up | Every future payment | The next five years | A lump sum now |
Illustrative example. Totals add up the payments as scheduled; they assume the payer keeps paying and are not adjusted for the value of money over time.
Note and recorded mortgageLeases or current rent rollAny personal guaranteeTax and insurance recordsA commercial mortgage note is a seller-financed note secured by property used for business or investment: a shop, an office, a warehouse, a restaurant building, a small apartment block, a self-storage site. You sold the property, carried some or all of the financing, and recorded a mortgage or deed of trust against it.
On paper it looks like any other real estate note. It is priced differently because the collateral behaves differently from a home.
A house is worth roughly what similar houses nearby sell for. A commercial property is worth what it can earn. If the building loses its tenant, or the business that runs from it struggles, the value of the property can fall at the same moment the payments stop.
A buyer of a commercial note therefore reviews the income as well as the payer and the property.
| What is reviewed | What the buyer asks |
|---|---|
| The payer | Often a company. Who stands behind it, and did anyone sign a personal guarantee, which is an individual’s promise to pay if the company does not? |
| The property | Its type, condition and location, and how many other uses it could be put to. A plain warehouse suits many tenants. A car wash suits one kind. |
| The income | Rent rolls, leases and how long they run, or the trading figures of the business that occupies the building. |
That review takes specialist knowledge, so fewer buyers work with commercial paper and each takes longer to decide. A narrower field tends to mean buyers who want a higher return, and so a larger discount than a comparable note on a home.
Commercial notes are often written differently from home notes. A balloon is one example: payments are calculated over a long period, but the whole balance falls due after a few years. A buyer has to judge whether the payer will be able to refinance or pay when that date arrives.
An interest-only period is another. While the balance is not coming down, the buyer’s cushion of equity does not grow.
Past use of the site matters too. Gas stations, dry cleaners, auto shops and some industrial sites can carry contamination risk. Buyers generally want an environmental report for these, and some will not bid without one.
A buyer will not rely on the price your property sold for. Expect a commercial appraisal or a broker’s opinion, and expect it to turn on income. If you can show the leases and the rent actually collected, you remove a guess from the buyer’s price. So when you send us the details of the note, attach the rent roll or the leases to the first message.
Look at who signed. If the note was signed only by a company with no assets beyond the building, a buyer has less to pursue.
A buyer who is cautious about ten years of a commercial note may be more willing to price the next three or four, so ask whether a partial purchase, the sale of a shorter run of payments, would draw a better bid.
Collect the note, the recorded mortgage or deed of trust, any personal guarantee, current leases or a rent roll, and proof that taxes and insurance are paid. Of the note types we see, this one asks the most of the seller’s records. If a lease is due to end soon, find out whether the tenant means to renew, because a buyer deciding whether a note on a commercial property will sell reads the lease dates as closely as the payment record.
Yes. They look at the income the property produces and the business that occupies it, as well as the payer and the equity. That takes more documents, and fewer buyers do it.
It adds a question the buyer has to answer: can the payer refinance or pay when the balloon comes due. A strong property and a payer with good finances make that easier. A balloon close at hand on a weak property makes buyers cautious.
Expect the buyer to order a current valuation as part of their review, since commercial values turn on income and can move a good deal. Who pays for it differs between buyers, and it should be shown on the worksheet.
Yes. Multi-unit residential property is commonly treated as commercial once it passes a few units. Buyers will ask for the rent roll and how full the building is.