What if I have a mortgage on the property?

We can still structure the deal. Common approaches include subject-to (the existing loan stays in place and we take title subject to it), wraps (you carry a note that wraps your existing loan), or full payoff at close with you carrying a smaller second-position note. We walk through each option and the trade-offs.

Service

Seller financing: how Kallpa structures owner-carry multifamily deals

Seller financing means you act as the bank: down payment up front, then monthly payments at an agreed interest rate. You spread your capital-gains tax, earn interest on what would otherwise be parked cash, and often get a higher headline price. Kallpa structures these deals routinely on 5-to-50-unit multifamily.

Definition

What is seller financing, really?

You act as the bank. Instead of getting a lump-sum payout at close, you receive a down payment plus monthly payments over a fixed term (often 5 to 10 years) at an agreed interest rate. The property serves as the collateral. You can foreclose if we default, exactly like a bank can.

The structure is documented in a promissory note (the IOU) and a deed of trust or mortgage (the security). Both are recorded at title. The closing looks like a normal sale on the buyer's side and like a financing transaction on yours.

Why it matters

Why would I want to seller-finance my property?

Three reasons come up the most.

Spread the capital-gains tax.

A traditional sale realizes the full gain in the year you close. Seller financing recognizes the gain on an installment basis under IRC Section 453: you only pay tax on the principal received each year. For a property held a long time with a low basis, this can be the single largest financial reason to consider the structure.

Earn interest.

The cash that would otherwise sit in a brokerage account or money-market fund is instead earning the note rate, secured by the property you know better than any third party. Note rates on multifamily owner-carry deals typically run somewhere between current Treasury yields and conventional commercial rates.

Higher headline price.

In exchange for carrying the financing, you typically get a stronger price than the same buyer would offer cash. The financing premium comes from us paying you interest instead of paying it to a bank.

Fit check

Who benefits most from seller-financing a sale?

Seller financing isn't right for every owner. It tends to be the better choice when:

You've owned the property a long time and have a low basis. The capital-gains hit on a lump-sum sale would be significant.
You don't need 100% of the proceeds at close. You want some cash now and steady income later.
You're not in a hurry to redeploy the capital. If you're 1031'ing into a different asset, cash makes more sense.
You believe in the building. You know it's a sound asset, you know the area, and you're comfortable being secured by it for a few years.

Cash is usually the better choice if you're 1031-exchanging, retiring out of real estate entirely, or you need the proceeds for a known near-term use (new home, education, business sale, divorce settlement).

Worked example

What does the tax math actually look like?

Rough illustration, not tax advice. Consult your CPA before structuring anything.

Say you sell a 16-unit Wichita property for $900K with a $200K basis (held 20+ years, mostly depreciated out). Lump-sum cash sale at long-term capital-gains rates (let's say 20% federal plus depreciation recapture and state, call it an effective 28% blended rate on the $700K gain): you write a check to the IRS for roughly $196K in the year of sale.

Same sale structured as 25% down ($225K) plus a 5-year owner-carry note at 7% interest on the $675K balance: you receive $225K at close, recognize roughly 25% of the gain that year, and pick up the rest as principal payments come in over 5 years. Plus you collect interest income on the outstanding balance, roughly $127K total over the life of the note.

The arithmetic varies enormously by basis, holding period, state, and your other income. The point is just that the difference between "all gain in year one" and "gain spread over five years plus interest income" is not small.

Existing debt

What if I still have a mortgage on the property?

We can still structure the deal. The three common approaches.

Subject-to.

The existing loan stays in place; we take title subject to it and make the payments. Your name stays on the loan, you trust us to keep paying. This is the simplest structure and works best when the existing loan terms are favorable. Lenders technically have a due-on-sale clause, but in practice they rarely call performing loans.

Wrap.

You carry a note from us at one rate (say 7%); your existing bank loan stays at its rate (say 4%). We pay you, you pay your bank, you keep the spread. Mechanically more complex but can be very tax-efficient.

Full payoff plus second.

We pay off your existing loan at close and you carry a smaller second-position note for the balance. Cleanest legally because there's only one debt remaining. Less tax-efficient because you take more cash up front.

We walk through each option, the trade-offs, and what makes sense given your specific loan terms, equity position, and tax situation.

Protections

How am I protected as the seller-lender?

The same way a bank is. The note is recorded against the property. If we miss payments, you have foreclosure rights. If we default catastrophically, you take the property back, typically in better condition than you sold it (we will have invested in operations and capex during the hold).

We also typically structure deals with:

A balloon at term. 5 to 10 year amortization with a balloon, so the loan resolves on a known date.
Personal guarantees from the principals. Not just the LLC.
Insurance and tax escrows. So you're not waiting to find out if we paid the property tax.
Reporting requirements. Annual financials so you can see the property is being operated honestly.

Talk to a real estate attorney before you sign anything. We'll cooperate fully with whatever protections your counsel asks for.

Tell Jose about your property

Two minutes. No broker. He'll read it himself and reply within a business day.

FAQ

Common questions about seller financing

What does seller financing actually mean?: You act as the bank. Instead of getting a lump-sum payout at close, you receive a down payment plus monthly payments over a fixed term (often 5 to 10 years) at an agreed interest rate. The property serves as the collateral. You can foreclose if we default, exactly like a bank can.
Why would I want to seller-finance my property?: Three common reasons. First, you spread the capital-gains tax over years instead of taking it all in one year. Second, you earn interest on what would otherwise be cash sitting in a brokerage. Third, you often get a higher headline price in exchange for the financing.
What if I have a mortgage on the property?: We can still structure the deal. Common approaches include subject-to (the existing loan stays in place and we take title subject to it), wraps (you carry a note that wraps your existing loan), or full payoff at close with you carrying a smaller second-position note. We walk through each option and the trade-offs.