Line of Credit as Buyer on Installment Sale

4 Replies

I am trying to figure out if it is possible to get a commercial line of credit on an apartment building that is purchased through a 100% seller financed installment sale. I know that as the buyer it would be in my best interest to refinance out, but if you had a deal with the seller to maintain the installment sale payments for 10+ years in order to provide capital gains savings and interest on the loan, it would be great to be able to access the built up equity (or even forced appreciation) to cover capital expenditures in the subject property at the very least, maybe even use the equity for other acquisitions.

I've done a good bit of research on this and understand that an installment sale provides the buyer with equitable title, but legal title remains with the seller until the last installment payment is made. I've talked to one portfolio lender and they have never heard of such a loan. If the contract was written creative enough, I would think that a bank would offer a line of credit if the lone variable of the seller having legal title was accounted for.

This is my first BP post after doing a lot of lurking so I look forward to the responses. Thanks!

Originally posted by @Michael Opdyke :

I've done a good bit of research on this and understand that an installment sale provides the buyer with equitable title, but legal title remains with the seller until the last installment payment is made. 

 No, I don't think you will have success taking out a loan (from a financial institution) secured by a property you do not own... if you prove me wrong, please post about it so we can all learn!

Thanks for the responses. I contacted a couple more banks but no luck. I will be continuing to contact more banks. Below is an article that gave me hope this was possible. It was for a residential line of credit rather than a commercial line of credit though.

https://budgeting.thenest.com/can-home-improvement...

To follow up on this post, I recently realized that using Seller Carry-Back financing (seller holds a mortgage lien) as opposed Installment Payment financing (more commonly known as land contract and contract for deed) that both methods benefit the seller the same with regards to treating income as an installment sale (defers capital gains over the term of the loan), but with Seller Carry-Back financing legal title transfers at closing just like a bank loan. So getting a line of credit on a property with a first lien position as a Seller Carry-Back note should not be a problem. 

As a buyer, IMO it would make no sense to offer to purchase a property with a land contract if the seller is willing to do a Seller Carry-Back.

Here is a good site that explains the difference:

http://conservationtools.org/guides/26-installment...

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