Seller Financing World — Investor Glossary

A

Absorption Rate

The rate at which available commercial properties sell or lease in a given market during a specific time period. High absorption = seller's market. Low absorption = buyer's market — and more leverage for creative deal structures.

Accrued Interest

Interest that has accumulated on a seller-financed note but hasn't been paid yet. Common in deals with deferred payments or interest-only periods during the first 6–12 months.

Amortization

The process of paying off a loan through regular payments of principal and interest over time. Most seller-financed deals use 15–25 year amortization with a 5–7 year balloon — meaning monthly payments are low, but the remaining balance comes due at the balloon date.

Amortization Schedule

A table showing each payment on a loan, broken into principal and interest. Essential for modeling seller-financed deal cash flow. Use the Seller Financing Calculator to generate one.

Asset Class

A category of investment property. SFW tracks 8 commercial asset classes: self-storage, mobile home parks, car washes, laundromats, RV parks, marinas, boat/RV storage, and budget motels.

Assumable Mortgage

A mortgage that allows the buyer to take over the seller's existing loan terms. Rare in commercial, but when available, can be combined with seller financing for the gap between the assumable balance and purchase price.

B

Balloon Payment

A large lump-sum payment due at the end of a loan term. In seller financing, balloons of 5–7 years are standard — the buyer makes monthly payments based on a longer amortization (20–25 years), then pays the remaining balance or refinances at the balloon date.

Basis Points (bps)

One-hundredth of a percentage point (0.01%). 100 basis points = 1%. Used when discussing interest rate differences. "The seller wants 200 bps above prime" = prime rate + 2%.

Blanket Mortgage

A single mortgage covering multiple properties. Used by portfolio investors who buy several assets from the same seller with one seller-financed note.

Boot

Cash or non-like-kind property received in a 1031 exchange that IS taxable. Sellers sometimes prefer seller financing to avoid boot and defer capital gains — which is your negotiation leverage.

Bridge Loan

Short-term financing (6–24 months) used to "bridge" between buying a property and securing permanent financing. Seller financing can serve as an alternative to expensive bridge loans from hard money lenders.

Broker Price Opinion (BPO)

An estimate of property value provided by a real estate broker. Less formal than an appraisal. Useful as a starting point, but always verify with actual income data — BPOs don't reflect operational cash flow.

Buyer Due Diligence

The investigation period after a purchase agreement where the buyer verifies all claims about the property. In seller-financed deals, this is your window to confirm NOI, inspect physical condition, and validate the owner's financial representations. See: Hidden Costs of Buying Self-Storage.

C

Cap Rate (Capitalization Rate)

Net Operating Income ÷ Purchase Price × 100. The most common metric for valuing commercial property. A 10% cap rate means the property generates 10% of its purchase price in annual net income. Higher cap rate = higher return (and usually higher risk). See: Self-Storage Cap Rates by State, Car Wash Cap Rates.

Capital Expenditure (CapEx)

Major expenses that improve or extend the life of a property — roof replacement, repaving, new equipment. Not included in NOI calculations. CapEx reserves of 5–10% of gross revenue are standard. See: Hidden Costs of Buying Self-Storage.

Capital Gains Tax

Tax on profit from selling an asset. Seller financing allows sellers to spread capital gains over the life of the note (installment sale treatment under IRS §453), which is a key reason owners agree to carry the note.

Carried Interest

Not to be confused with "carrying the note." Carried interest is a share of profits paid to a fund manager. In syndications that buy seller-financed assets, the GP typically earns 20% carried interest above a preferred return.

Carrying the Note

When a seller acts as the lender, accepting payments over time instead of a lump-sum at closing. This is seller financing. The seller "carries" the promissory note.

Cash-on-Cash Return

Annual pre-tax cash flow ÷ Total cash invested × 100. Measures the return on your actual out-of-pocket investment. In seller-financed deals with low down payments (10–20%), cash-on-cash returns can exceed 30–50%.

Closing Costs

Fees paid at transaction close — title insurance, attorney fees, recording fees, transfer taxes. Seller-financed deals typically have lower closing costs because there's no bank origination fee, no appraisal requirement, and often no survey requirement.

Collateral

The property itself, pledged as security for the seller-financed note. If the buyer defaults, the seller can foreclose and reclaim the property.

Creative Finance

Any deal structure outside traditional bank lending. Includes seller financing, subject-to, master lease, lease-option, wraparound mortgages, and hybrid structures. The unifying concept behind SFW.

D

Debt Service Coverage Ratio (DSCR)

NOI ÷ Annual Debt Payments. A DSCR above 1.0 means the property generates enough income to cover loan payments. Banks require 1.20–1.25x DSCR. Seller-financed deals have no DSCR requirement — another reason creative finance wins.

Deed of Trust

A document used in some states instead of a mortgage, involving three parties: borrower, lender (seller), and a neutral trustee. Allows for non-judicial foreclosure, which is faster if the buyer defaults.

Default

Failure to meet loan obligations — missed payments, insurance lapse, property damage. Seller-financed notes typically have cure periods (30–60 days) before the seller can initiate foreclosure.

Depreciation

A tax deduction for the "wear and tear" on commercial property. Commercial assets depreciate over 27.5 years (residential) or 39 years (commercial). Combined with seller financing's low down payment, depreciation can create significant tax shields.

Down Payment

The buyer's upfront cash investment. Typical seller-financed deals: 10–20% down. Banks require 25–30%. This gap is the #1 reason investors use seller financing — more deals with less cash.

Due Diligence

The comprehensive investigation of a property before closing. Includes financial audit, physical inspection, environmental review, title search, and lease review. See: Due Diligence Mistakes That Kill Car Wash Deals.

Due-on-Sale Clause

A clause in existing mortgages that allows the lender to demand full repayment if the property is sold. Relevant in subject-to deals. Pure seller financing (no existing mortgage) avoids this entirely.

E

Earnest Money

A deposit demonstrating the buyer's serious intent, typically 1–3% of purchase price. Held in escrow and applied to the down payment at closing.

Egress

The ability to exit a property. Critical for car washes (traffic flow), self-storage (truck access), and RV parks (large vehicle navigation).

Encumbrance

Any claim, lien, or restriction on a property. Title searches reveal encumbrances. Always get title insurance on seller-financed deals — even though it's not legally required.

Environmental Site Assessment (ESA)

A study evaluating potential environmental contamination. Phase I is a records review ($2,500–$5,000). Phase II involves soil/water testing ($10,000–$50,000). Mandatory for car washes, gas stations, and any property with underground tanks. See: Environmental Liability for Car Wash Buyers.

Equity

The difference between a property's market value and what's owed on it. As you pay down a seller-financed note, your equity grows. Forced appreciation through operational improvements accelerates equity build.

Escrow

A neutral third party that holds funds and documents during a transaction. In seller-financed deals, escrow may also collect monthly payments and distribute them to the seller (servicing).

F

Fair Market Value (FMV)

The price a willing buyer would pay a willing seller, both with reasonable knowledge. For income properties, FMV is typically derived from NOI ÷ cap rate.

First Lien Position

The lender with first claim on the property if the borrower defaults. In pure seller financing, the seller holds first lien position — maximum security for the note holder.

Fixed Rate

An interest rate that doesn't change over the life of the loan. Most seller-financed notes are fixed-rate, which benefits the buyer in rising rate environments.

Forced Appreciation

Increasing a property's value through operational improvements rather than market conditions. Raising rents, reducing expenses, improving occupancy — the value increase goes directly to the owner's equity. The #1 strategy for building wealth in commercial assets.

Foreclosure

The legal process by which a lender reclaims a property after borrower default. Seller-financed deals using a deed of trust allow faster non-judicial foreclosure in many states.

Full Hookup

An RV site with water, sewer, AND electric connections. Full hookup sites command premium rates. Relevant for RV parks.

G

Gross Income

Total revenue before any expenses. For commercial assets: rent/fees collected + ancillary income (vending, late fees, etc.).

Gross Rent Multiplier (GRM)

Purchase Price ÷ Annual Gross Rent. A quick-and-dirty valuation metric. Lower GRM = better value. Less precise than cap rate because it ignores expenses.

Guarantor

A person who guarantees a loan. In seller-financed deals, the buyer is typically the sole guarantor. Some sellers require additional guarantors for larger notes.

H

Hard Money Loan

A short-term, high-interest loan from a private lender, secured by the property. Rates: 10–15% + 2–4 points. Seller financing is almost always a better deal — lower rate, longer term, no points.

Highest and Best Use

The most profitable legal use of a property. Relevant when evaluating whether to keep a property as-is (laundromat) or convert it (self-storage, car wash). Seller-financed acquisitions allow time to explore conversions without bank pressure.

Holdback

A portion of the purchase price held in escrow until certain conditions are met (repairs completed, occupancy targets hit). Useful in seller-financed deals to protect against seller misrepresentation.

I

Income Approach

A property valuation method based on the income it produces. NOI ÷ cap rate = value. The standard for commercial assets. Ignores comparable sales — because a laundromat's value comes from what it earns, not what the building next door sold for.

Installment Sale

IRS tax treatment (§453) allowing sellers to spread capital gains over the payment period. This is the seller's #1 reason to agree to seller financing — they pay taxes only as they receive payments, not all at once.

Interest-Only Period

A period (typically 6–24 months) where the buyer pays only interest, not principal. Reduces early cash flow pressure while the buyer stabilizes operations. Common in seller-financed deals.

Interest Rate

The cost of borrowing money, expressed as an annual percentage. Typical seller-financed rates: 5–8%. Banks: 7–10%+ for commercial. The gap favors seller financing.

L

Land Contract (Contract for Deed)

A seller financing structure where the seller retains title until the buyer completes all payments. Common in mobile home parks and rural commercial properties. Buyer gets equitable interest but not legal title until payoff.

Lease Option

A lease with an option to buy at a predetermined price. The buyer leases and operates the property, then exercises the purchase option later. A creative finance entry strategy when the seller isn't ready for a full sale.

Lien

A legal claim on a property as security for a debt. Tax liens, mechanic's liens, and judgment liens can cloud title. Always do a title search before closing a seller-financed deal.

Loan-to-Value Ratio (LTV)

Loan Amount ÷ Property Value × 100. A 20% down payment = 80% LTV. Banks cap commercial LTV at 70–75%. Seller-financed deals routinely reach 80–90% LTV — more leverage for the buyer.

Lot Rent

The monthly fee a mobile home park charges each tenant for their pad/lot. Lot rent is the primary revenue driver for MHP investors. Tenants own their homes; you own the land.

M

Master Lease Option

A creative finance structure where the buyer leases the entire property from the owner, operates it, keeps the profit above the lease payment, and has an option to purchase. Zero down payment entry strategy — you control the asset without owning it.

Mobile Home Park (MHP)

A property with pads/lots rented to tenants who own their manufactured homes. One of the most seller-financeable asset classes — aging owners, fragmented market, few institutional buyers. See: How to Buy a Mobile Home Park with Seller Financing.

Mortgage

A loan secured by real property. In seller financing, the seller IS the mortgage holder — no bank involved.

N

Net Lease (NNN / Triple Net)

A lease where the tenant pays base rent PLUS property taxes, insurance, and maintenance. Common in commercial real estate. NNN properties have predictable NOI because the owner has minimal expense exposure.

Net Operating Income (NOI)

Gross Income – Operating Expenses = NOI. The single most important number in commercial real estate. Does NOT include debt service, depreciation, or capital expenditures. NOI drives property valuation through the cap rate formula.

Note (Promissory Note)

The legal document specifying loan terms — amount, interest rate, payment schedule, balloon date, default provisions. In seller financing, the note IS the deal. Have a real estate attorney draft it. Never use templates.

Note Buyer

An investor who purchases existing promissory notes at a discount. Sellers who carry the note can later sell it (at a discount) for a lump sum. This gives sellers a liquidity option even after agreeing to seller financing.

O

Occupancy Rate

Occupied Units ÷ Total Units × 100. For self-storage, 85%+ is healthy. For MHPs, 90%+. For car washes, measured by cars/day. Low occupancy = upside opportunity OR red flag. Investigate which.

Off-Market

Properties not listed on any public marketplace. 98% of commercial assets are off-market at any given time. Finding them requires direct owner outreach — which is exactly what SFW's owner contact data enables. See: Finding Off-Market Laundromats.

Operating Expenses (OpEx)

The costs of running a property — taxes, insurance, utilities, management, repairs, marketing. Subtracted from gross income to calculate NOI. Always verify seller-reported OpEx against actual bank statements and tax returns.

Owner Financing

Synonym for seller financing. The property owner acts as the lender. Terms are negotiated directly.

P

Pad (Lot)

An individual site in a mobile home park where a manufactured home sits. Revenue per pad × number of pads = gross lot rent income.

Personal Guarantee

A promise that the borrower is personally liable for the debt beyond just the collateral property. Most seller-financed notes include personal guarantees. Negotiate to remove or limit them when possible.

Phase I ESA

See Environmental Site Assessment.

Prepayment Penalty

A fee charged for paying off a loan early. Some seller-financed notes include prepayment penalties (typically in years 1–3) to ensure the seller receives a minimum return. Negotiate these OUT if possible — you want the flexibility to refinance.

Principal

The loan amount, excluding interest. Each monthly payment reduces the principal balance. In interest-only periods, principal stays flat.

Promissory Note

See Note.

Pro Forma

A financial projection showing expected future performance. Sellers show pro forma to make properties look better than they are. Always value based on ACTUAL trailing 12-month financials, never pro forma.

R

Recourse

The lender's ability to pursue the borrower's personal assets (beyond the property) in case of default. Most seller-financed notes are full recourse. Non-recourse notes exist but are rare and require strong collateral.

Rent Roll

A list of all tenants, their unit numbers, lease terms, and rent amounts. The rent roll is the first document to request in any due diligence process. Verify it against bank deposits.

Return on Investment (ROI)

Net Profit ÷ Total Investment × 100. Broader than cash-on-cash because it includes appreciation, principal paydown, and tax benefits.

S

SBA Loan

A loan partially guaranteed by the Small Business Administration. SBA 7(a) and 504 programs finance commercial property. Requires 10–20% down, 680+ credit, 2+ years business history, and 60–90 day approval. Seller financing has none of these requirements. See: Seller Financing vs SBA Loans.

Second Lien

A subordinate lien on a property, behind the first lien. Some deals layer seller financing as a second lien behind a bank loan to cover the gap.

Seller Financing

A deal structure where the property owner acts as the lender, accepting payments over time instead of a lump-sum at closing. The seller "carries the note." No bank involved. Terms — rate, down payment, amortization, balloon — are negotiated directly between buyer and seller. The most flexible way to buy commercial assets.

Seller Financing Calculator

A tool for modeling deal terms — purchase price, down payment, interest rate, amortization, balloon date. Shows monthly payments and total cost. Use ours free →

Skip Trace

The process of finding contact information (phone, email, address) for a property owner. Traditional skip tracing costs $0.50–$1.00 per record. SFW includes owner contact data in the subscription — no separate skip trace needed.

Subject-To (Sub-To)

Buying a property "subject to" the existing mortgage staying in place. The deed transfers to the buyer, but the seller's loan remains. Risk: the bank can call the loan due (due-on-sale clause). Reward: you inherit the seller's favorable loan terms.

Subordination

A legal agreement where one lien holder agrees to take a lower priority position. Relevant when refinancing a seller-financed deal — the seller may need to subordinate to a new first-position bank loan.

T

Title Insurance

A policy protecting against defects in property title — liens, encumbrances, ownership disputes. Always require title insurance on seller-financed deals, even though no bank mandates it. Cost: $1,000–$3,000. Worth every penny.

Title Search

A review of public records to verify property ownership and identify any liens or encumbrances. Done by a title company before closing.

Trailing Twelve Months (T12)

The most recent 12 months of financial data. Always value commercial property on T12 actuals, not pro forma projections. Request P&L statements, bank deposits, and tax returns.

U

Underwriting

The process of evaluating a loan's risk. Banks underwrite heavily (60–90 days). Seller financing has no formal underwriting — the seller evaluates the buyer directly, which is why deals close in 2–4 weeks.

Upside

The potential to increase a property's value or income through improvements, rent increases, or operational efficiency. Low occupancy + below-market rents = upside play — the ideal seller-financed acquisition target.

V

Vacancy Rate

Vacant Units ÷ Total Units × 100. The inverse of occupancy rate. Factor vacancy into NOI projections — even stabilized properties have 5–10% vacancy.

Variable Rate

An interest rate that adjusts periodically based on a benchmark (prime, SOFR). Avoid variable rates on seller-financed notes — lock in fixed rates while you can.

Valuation

The estimated market value of a property. For income-producing assets: NOI ÷ cap rate. SFW provides estimated valuations based on comparable data and financial benchmarks.

W

Wraparound Mortgage (Wrap)

A seller-financed note that "wraps around" the seller's existing mortgage. The buyer makes payments to the seller, who continues making payments on the original loan. The seller profits on the interest rate spread. Risk: if the seller stops paying the underlying mortgage, the buyer's property is at risk. Use a servicing company.

Z

Zoning

Local government regulations controlling land use. Commercial zoning classifications determine what you can build or operate. Always verify zoning before buying — a car wash rezoned residential is worthless as a car wash.

100 terms defined. Built for investors who buy with creative financing.

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