Providing seller financing in the form of a bridge/gap loan

[Gregg C.]

I am in the sale phase of a flip. I’ve had 17 showings but zero offers after seven weeks on the MLS. I have a potential offer but the buyer wants an FHA loan with only 3.5% down. Problem with that is the property is a condo in a non-warrantable building (own/occ rate is 47%). I knew this going in but spoke to a handful of portfolio lending banks that said they would lend in these situations for qualified borrowers. I have done this myself as a buyer for my primary residence with a local credit union. However, the banks require 20% down.

I was considering seller financing in the form of a loan to gap the 16.5% balance needed to reach 20% down. Definitely a risk but it allows me to get 83.5% of the purchase price now instead of continuing to wait which still gives me decent profit on its own. I would of course want to encumber the property even if I am in second position to the bank and make sure this isn't a personal loan without having an interest in the property. My thought on the loan is short term (< 2 years) and an interest rate of 10%-12%.

Is this a viable option? Can I encumber the property in this structure? Should I leave this to the professional lending sources out there? Admittedly I would need the assistance of a lawyer to draft the agreement if I did this.

For background the unit is a studio apt (part of the difficulty in selling) in a great neighborhood in Central Denver. I paid $40,000 for the unit, put in $15,000 to renovate, listed at $87,900 (in line with comps for recent sales).

Worth the risk to offer the gap financing or better to just sit tight and wait for a buyer that can bring 20% down?

Thanks, GGG