Big Money Cash Close

[David Braut]

I read about a technique in a home study course by Peter Conti and David Finkel which they called the "Big Money Cash Close".  It involves a seller who still owes about half of what the home is worth.  The investor agrees to "bring in new financing" and gets a new mortgage to pay off the underlying first loan balance at closing.  The seller agrees to carry back a second on their equity.  A key point in this strategy is that the new first loan is not a hard money loan and has an interest rate equal to market rates and is amortized over 30 years.

Has anyone else heard of or used a strategy similar to this one?

[Tommy Adeoye]

@David Braut Yeah, I've come across that strategy. The Conti and Finkel's "Big Money Cash Close," but at its core it's really just a seller carryback combined with a new first mortgage. People still use it, but mostly on investment properties, commercial deals, or with DSCR lenders. Conventional lenders don't allow a seller second behind their loan anymore, so the structure has shifted a bit, but the idea still works.

A good example I saw recently involved a small eight-unit building listed at $720,000. The seller still owed around $350,000 but had a lot of equity and wasn't in a rush. The rents were solid, so the buyer went to a DSCR lender rather than a conventional bank.

The lender ended up giving them a first mortgage for about $500,000 at a normal market rate with a 25-year amortization. The seller agreed to carry the remaining $170,000 as a second note at six percent, interest-only, for five years. The buyer only had to cover closing costs, which came out to something like nine grand. The combined loan-to-value was around ninety-three percent, which the DSCR lender didn't mind because the DSCR numbers looked good.

The seller liked the deal because they got their full price and created a monthly income stream from the second note. The buyer liked it because they picked up an eight-unit property for almost no money down and with long-term financing on the first.

You may have to work through hell and hot water to find a worthy lender.

But the concept definitely still exists.  It just shows up differently today, and it works best with sellers who have real equity and lenders who are comfortable with subordinate financing. If you get both of those aligned, it’s still one of the better “low cash in” structures out there.