Creative financing for 3-unit property - strategies?

14 Replies

Hey friends, I came across a 3-unit property in a decent part of Harrisburg City that I would love to own. The owner called after getting a piece of my mail. They are motivated to sell, but not motivated enough to sell for a discount that would make a wholesale possible. I like the apartment because it's been well cared for and produces good income. The owner is interested in an owner finance deal, but not for a large portion. They want to get a good chunk of cash out. He's entertaining the idea of a bank holding 1st lien and 80%, then he would take 10% and 2nd position. I would have to come up with the other 10% in that scenario. Im trying to think of other creative ways to minimize my cash investment. Any advice? -Nick

First, based on the way you just laid this out, it won't work.  Here's why.  It has to do with the timeline of each of the combined funds you are thinking of using:

1 - Cash...yours = 10% not a problem...assuming you have it.

2 - Seller financing (other half of DP) = 10%.  Assuming you can agree on terms, not a problem.

3 - Bank 1st lien = 80%.....oooops, big problem.  You already have a 1st lien, the seller's lien (#2).  The bank won't take a 2nd.  Most lenders (all that I know) won't let any of the DP be a loan anyway.

You can't get the bank loan without the DP, so this ends up being a "chicken/egg" scenario.

@Nick Hundertmark I've recently found myself trying to put something similar together from a financing perspective in the Harrisburg area. In the past two weeks I've called about 10-15 lenders and absolutely found what @Joe Villeneuve is saying in his third point to be the case. I've also found lines of credit/second mortgages on other investment properties to be a no go as well.

One option I'd suggest looking into is a blanket mortgage. I personally haven't done one yet but may end up trying it to make my deal work. While it would chew up equity you would have else where, it could minimize your cash out of pocket.

Hello @Nick Hundertmark !  Congratulations on finding, what could be a great deal.  This absolutely can work.  If you need help finding a good commercial loan broker message me and I can give you his number because he lends on these types of deals all the time(80/10/10).  As the gentleman above note, you won't have 1st position, but who cares??  You still have control of the property and reap all the same benefits.

Other seller financing options could be you pay them with interest and if they want paid off in a shorter amount of time you can do a balloon payment to give yourself that much time to save up for the other 10% needed before you can get a loan on it.  I structured a seller financing deal with an 80 year old tired landlord in Harrisburg, where I'm paying her back at 5% interest on a 20 yr amortized note, with a 5 year balloon .  Until she's paid back she is still in first position, but I have complete control of the property and get all the cash flow, tax benefits, etc.  There are many different ways you could structure the deal or find private money/equity partner for the other 10%

@Nick Hundertmark

Yeah sounds like you can do it; just not with a conventional lender.  Conventional lenders have all kinds of restrictions on how you pay for the down payment.  As Travis mentioned, commercial loan or portfolio loan.  I've got a portfolio lender near you, shoot me a PM and I'll provide the contact info.

@Travis Wylie please share the commercial broker's contact details.. I am pursuing a deal for which might need financing options. Have you personally used him? 

Could you talk a little more about your seller financing deal? It sounds interesting.. So from what you are saying, she didn't want money outright and was ok getting paid 5% interest only for 5 years until balloon payment comes due? do you plan to refinance and get it under your name after that?  what kind of documentation/ contracts are involved in this kind of arrangement?

@Kyle M. Would you mind sharing the portfolio lenders contact details? 

@Nick Hundertmark Congratulations on implementing a hopefully successful yellow letter strategy!  Sorry to hijack your thread!  As Travis suggested, if the deal is really good, equity investors wont be hard to come by.  What % of equity are you looking to raise?

@Nick Hundertmark

I can't tell if this is will work for you due to lack of information, but here's an option. Ask the sellers if they would pull a loan as a refinance for 80% of the value of the property. This loan should be easy to get unless they have bad credit. Buy the property subject to the note/mortgage they just got and have them carry back a 2nd mortgage for the balance owed. All of this of course takes negotiating. Why would they accept this you ask? Perhaps you offer them above retail price if they give you favorable terms. I make these types of offers all the time. The key is to focus on solving the sellers problems. I can elaborate more, but I would need more details.

Happy Investing

Derek Dombeck

@Nick Hundertmark talk to a closing attorney. See if you can do this with two closings. First buy the property in closing one with 80% bank and 20% you. Bank is recorded as first position. After the closing have a second closing where the attorney creates a note and mortgage with the seller for 10% of the deal and is filed in second position. You would need 20% for the transaction but get 10% back at second closing.

Originally posted by @Nick Hundertmark :

Joe Villeneuve I've met with commercial loan officers who told me that this financing scenario wouldn't be an issue. They said that they regularly under right loans where the seller is holding a 10% note.

 Did you ask them if that seller note was the entire DP though?  

This post has been removed.

Originally posted by @Nick Hundertmark :

Joe Villeneuve the way we would do it with bank financing is 80% LTV held by bank, 10% retained by seller as a second mortgage and 10% brought by me.

 Let us know how this all goes, and when you get your financing in place for this then.

Create Lasting Wealth Through Real Estate

Join the millions of people achieving financial freedom through the power of real estate investing

Start here