70% convential with 30% seller finance

9 Replies

I am interested in entering the multi family space but the cost of entry seem so much higher than the so how family units that have purchased so far.  My covnetional lender will lend up to 70% of purchase price.  And if I can get the seller to carry a second position note for up to 30% I would be able to gain ownership with little to no money Down.  Has anyone done this strategy?  If so how does it work?  Does the bank require some documents stating the other 30% is taken care of?  How do you address this?  Are you very open with conventional lender about owner carry back?

conventional lenders won't allow the second mortgage and at the closing you and the seller will sign a document stating there is no other financing in place with that deal. The funds for the d/p will have to be seasoned meaning they must be in your account for 60 days or two bank statement cycles @Dustan Marshall .

Dustan, @Rob Beland is right on that conventional lenders won't allow a second.

How I buy large multi's is raise private money from investors for the 25 to 30% and treat them as an equity partner. Lenders normally will underwrite an investor that has 10% of the deal - underwrite meaning they will require the investor to put forward tax returns, financials, and sign disclosures.

Thank you for posing this question  @Dustan Marshall . @Brian Adams @Rob Beland

With the equity partners, do I need to, have a separate agreement with each partner; form an LLC, trust, and make each partner a board member/part-owner; and not to be too convoluted but, what if each partner couldn't obtain a mortgage on their own and or was unable to provide tax returns, however the funds contributed were seasoned?

Then what is the maximum $ amt that I could raise W/O running into SEC violations (or legal problems) and can the LLC service as a mechanism for holding the funds or would we need to escrow the holdings?

Thank you in advance.

@Davon Lowery , one LLC operating agreement will cover everyone and each member will need to sign the agreement.

Your investors are buying into the deal and are not on the board. My response to you about investors is that you are the operator, the man running the show - the quarterback of the deal whereby your investors are passive and are looking to you to make them money. Also I focus on large 100 to 400 unit apartment deals where the financing is non-recourse. Just to mention, normally if the loan is less than a million you could be in recourse financing where you and possibly your investors are personally liable for the debt.

So assuming you are the operator, the debt is non-recourse and your investors own less than 10% of the deal your lender doesn't need to know about the personal situation of the investor like the mortgage or unable to provide tax returns.

I am not an attorney, but anytime you are pooling funds from passive investors for the sole purpose of making a profit for them you are selling a security and the SEC world applies. Please know that the SEC rules aren't hard to follow, but make sure my friend to dot the I's and cross T's so you don't run afoul and get yourself in trouble. Recently I had a Q&A call with a securities attorney that covers all this good stuff.

Good luck!!

@Brian Adams

Thank you! That is great information. I am very interested in using non-recourse loans for my future deals. I understand than when dealing with the monies of others, I need to be very transparent and overt with all the disclosures and actions. I have been successful at crowd funding already; ultimately, the deal didn't happen, but the experience was good.

I am still a bit lost on this.  Would I need a down payment on the 70% loan or could I call the seller a "partner" and not have to do a down payment?  

Or is this type of deal just not doable and its 100% seller finance or all convential finance... No hybrid?


I have not completed such deal myself, but I'm on the market for something similar and I have spoken to a few brokers as well as commercial lenders. I'm assuming you are talking commercial loan here. 

All lenders have told me, I need to have some skin in the game for them to even consider. 

Sellers financing doesn't have to be 100 percent of the deal only. It could be any portion of the deal. In my case, I'm looking to finance about 10-20 % (depending on the size) and the  seller to finance the remaining % to reach 25-30%. You need to take into account that you will need cash for repairs and all types of expenses to make the units ready or fix up things. I have run my scenarios by lenders and they have told me, they do such deals routinely. The last multi family I analyzed, my first question to the seller's brokers was if the seller would be willing to provide some financing...