Commercial Loan with Seller Carryback - What kind of terms today?

[Leo B.]

Hi All-

I'm looking into purchasing a mid-sized apartment and in the middle of researching financing for these types of deals. Ideally, I would like to leverage my down payment as much as possible. Hence, I will be considering seller carrybacks whenever possible. For those who have purchased apartments with seller carryback, what types of loan terms were you offered? Also, what are the requirements for the borrower? I have an LLC that I would like to title the property to.

• Amortization term (ie. 30 year, 25 year, etc)?
• Balloon term?
• Interest rate?
• Origination fee?
• Min. credit score?
• Reserve amount?
• Down payment?
• Assets?
• DSCR?

My basic apartment parameters are below:

• Mid-sized apartment complex (30 to 60 units)
• Performing building
• Looking for minor value adds
• Purchase price up to $1.5M
• Midwest (IN, OH, MO)

Thanks in advance for the replies.

[Darryl Dahlen]

I'd make sure you are talking to lenders (banks) so you can start to get an idea if you are a person they would lend to and what they look for in a property. A lot of lenders are very finicky about allowing 2nds and have parameters on how much they'll allow since they will still require a fair amount to come from you. 

Generally speaking, a lender will not allow the seller to hold a 2nd that's larger than your down payment. Meaning, if you are required to put down 25% to close the lender will want something like 15% to come from you and permit a 10% 2nd.

[Leo B.]

@Darryl Dahlen thanks for your input. What kind of terms are you running into with 10% seller carry?

[Darryl Dahlen]

I don't see many seller carries as most of my lenders don't allow them. I don't want to speculate as to what good terms are since I rarely see 2nds. Also, keep in mind that the lender will factor that terms of the second into the overall debt load of the property. The property must be able to service all of the debt under whatever DSCR requirement the lender has.

[Matthew Mason]

Leo, Curious as to your findings over the past few years? Any luck with a seller carryback? 

[Willy Vasquez morales]

How did you end ip doing with this deal?

[Todd Dexheimer]

Not many lenders will allow this and if they say that they will, make sure that you get clarity on what that means. Every lender I have talked to about this that will allow it, will actually reduce your LTV so that the total loan amount between the 1st and 2nd still hit DSCR and 20-25% down payment.

A viable option is to have the seller leave money into the deal as an investor. You then give them an equity split of the partnership on the limited side. You can make this a 5% preferred return or whatever you wish.