As a property owner in the Sioux Falls, SD metropolitan area, you may be wondering how to achieve above market selling prices on your commercial real estate in an environment of rising interest rates. The answer is assumable financing.
Assumable financing is a type of loan that allows a buyer to take over the seller’s existing mortgage on the property, with the same terms and interest rate. This means that if you have an assumable loan with a low interest rate, you can use it to your advantage when selling your property.
For example, let’s say you have a commercial property with a value of $1,000,000. You have an assumable loan for 50% of the cost, with an interest rate of 3.5% locked for 7 years. The new financing makes up 20% and has an interest rate of 7% locked for 10 years, and the buyer provides a cash down payment of 30% of the purchase price.
If you were to run the same scenario with the entire loan (70%) at 7%, the buyer’s blended interest rate would be 6.2%. By utilizing the assumable financing, the blended interest rate for the buyer is only 5.25%. This makes your property more attractive to buyers, as they will be able to obtain financing at a lower overall interest rate.
In addition, the assumable financing can also increase the value of your property, as it provides an added benefit to potential buyers. By having a low interest rate assumable loan, you are providing a unique advantage to potential buyers that can make your property stand out in the market.
If you are considering selling your commercial real estate in Sioux Falls, SD, it is important to consider assumable financing as a way to achieve above market selling prices in a rising interest rate environment.
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