Negotiating Purchase Commercial Storefront

by Anonymous


We are negotiating the purchase of a multi-use building commercial storefront w/ one apartment) with a land contract.

The length of term we are looking at is 3 years.

I am nervous about the balloon payment --

Is a commercial lender likely to look more favorably on our commercial mortgage application after we have these 3 years of demonstrated payments plus the down payment that was made initially?

We were unable to obtain a bank commercial loan to buy the building because we want to continue to live in the entire building and run our arts organization out of it (we are currently renters) instead of having an established business take over the storefront.

I hope this question makes sense!
Thank you!

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Purchasing a Commercial Storefront
by: Joe the Rehabber

Note: due to the length of this response, it will be posted as 4 comments

part 1

There is a lot more to purchasing a commercial storefront than the balloon payment to a land contract seller!

To answer your question if a commercial lender will finance you after 3 years of making timely payments on a land contract is only one consideration, but not the deciding factor.

Since the commercial lender did not approve your loan for purchasing a commercial storefront in the beginning, why would they make the loan later?

Ask your commercial lender what you need to do to qualify for the loan within the next 3 years at the end of your land contract to see if you will in fact be able to qualify.

Repeat... Ask your lender to provide you with the qualification guides for a commercial loan on a storefront, with apartment, and owner occupied, to see if you can qualify.

Keep in mind that a commercial loan is a business loan and different than a home owner loan.

A business loan will require a larger down payment, a higher interest rate, a shorter loan term, and in many cases a 5 year balloon to renegotiate that loan.

continued in part 2 of this comment section

Codes and Inspections
by: Joe the Rehabber

Codes and Inspections

part 2

A commercial storefront is a place of business and will have to meet additional criteria to be open to the public.

The U.S. Department of Justice - Americans with Disabilities Act (ADA) will require your building to be safely accessible for
- Parking
- Entrances
- Restrooms
and to be barrier free.

See the Federal Government guidelines at:

...And the City requirements...

Storefronts have additional requirements than homes! Check with your City building and planning department to see if the building is up to code for you as the new owner.

When purchasing a commercial storefront, the past owner may have been what they call "grandfathered" to its existing condition.

When the property changes hands, the building usually has to be brought up to the current building codes.

If the building passes the City and Federal Government codes to operate as a business with an owner occupant apartment, then focus back to the financing...

It's not worth loosing sleep over!

I know the excitement of purchasing a commercial storefront with living quarters - it's a dream come true for many of us.

Yet if the financing is not in place at the end of the land contract for the balloon payment, the owner can foreclose on you and take your storefront business and your home (storefront apartment) away from you without concern because it's in the contract... that's why your worried about it.


After doing your "Due Diligence" of City and Federal Government inspections before you sign the land contract...

continued in part 3 of this comment section

Negotiate with the Seller
by: Anonymous

Negotiate with the seller... by Joe the Rehabber
Part 3

Ask the seller to carry the land contract for the full term of the loan with No Balloon Payment.
Otherwise they may never be able to sell it.

You can include in your land contract that in 3 years you will apply for a commercial loan;
if approved fine, if not...

...Include in the land contract for the seller to extend the land contract an additional 3 years and again try to refinance.

Guaranteed Renewable for the life of the loan

As long as you try to refinance every 3 years,
provide the seller with a rejection letter from the commercial lender,
the guaranteed renewable clause in the contract will allow you to continue making payments on the land contract to the seller at the agreed monthly payment and interest rate.

Principle and Interest monthly payment to remain the same for the life of the loan, that's a fixed rate, and...

Avoid allowing the seller to renegotiate any change of terms to the monthly payments and interest at each 3 year interval. Put that in the contract.

Legal Advice Disclaimer

I'm not an attorney, I'm not giving legal advice, and I recommend you hire an attorney to prepare your land contract in your best interest.
The information here is from personal experiences of purchasing a commercial storefront property with living quarters of my own.

2 Important Things

1.) The seller is a business property owner and is willing to sell on a land contract because they cannot sell outright for cash.

I've know several cases where business property sellers repeatedly sell their properties to unsuspecting buyers trying to fill their dreams,
only for the buyer to lose their dream property from not being able to pay off the balloon payment.

Worse yet...

The Appraisal and Inspections

2.) Appraisals are not required on a land contract like it is required by a commercial lender!

Inspections are not required as well on a land contracts!

Not passing inspections and selling properties for more than the appraised value "may be" why a business property owner is selling on land contract and "could be" considered tricks of a business property seller to cash in on an unsuspecting buyer...

...That's a true story and happened to a dear friend of mine from an unscrupulous business property seller.

Negotiate with the seller to make the terms affordable and guaranteed renewable or pass because that's a no-win deal.
Find a different property.

continued in part 4 of this comment section

Due Dillegence
by: Joe the Rehabber

part 4

Due Diligence

Don't let your Dream overlook your Due Diligence!

The cost of an appraisal and the costs of inspections are minimal compared to losing the property from not being able to refinance the balloon payment of a land contract.

It's better to pay for the inspections and appraisal and not buy the property than to save a few hundred dollars only to lose your down payment and 3 years of payments later.


Check with your local Realtor and City departments to find out all you can about the property and the seller.

Take your time, do your homework, and remember:

There is an abundance of vacant commercial properties available on the market today.
If this one doesn't pan out,
keep looking until you find the
right property,
with the right terms,
that will avoid worry and sleepless nights at all costs.

And the "golden rule"

Is never to fall in love with a property that will cause you to:
pay too much,
take unnecessary risk,
or cause worry!

Hope this helps.

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