How to structure seller carry no money down deal?

Question

How would I, or should I, structure a deal to involve no money down? I am the buyer in this situation.

Example:

ARV = 130k

Rehab needed = 15k

Purchase price = 80k

Current/As-is value = 96k

The seller has said they would consider doing a seller carry. The property is also tenanted at the moment.

My guess is to get a mortgage for 60k with a 20k seller carry. Then once the tenant moves out I can use hard or private money to fix up the property then do a cash out refinance to pay off the seller.

Does this sound reasonable/correct?

Thanks in advance for any help you guys can provide!

Jeff Cichocki · Answer

@Timothy Howdeshell,

Unfortunately, the scenario you paint won't work for most HML's. Lenders want to be in first position. If the HML is willing to do the deal, they'll want to take out the first mortgage and the seller. They'll want the whole thing. If that works for you, you'll be able to refi into something else after.

The basic numbers you quote are good for LT financing, but will be difficult to get 100% covered by a HML. Most HML's want you to have some skin in the game. This usually comes in the form of some sort of financial participation from you. I'm not sure there's a way around it using HM.

However, if you can find a private lender, you may be able to pull it off. You should still give them 100% of amount financed (risk is exponentially greater with every position behind 1st the lender gets). You want your lender to be safe and secure.

As a side note... Have you asked the seller if they would lend you the money to do the rehab? It's not common, but I've seen it done.

Good luck!

Timothy Howdeshell · Answer

@Lee Ripma Thank you for the feedback!

We are still in early negotiation stages where they have indicated that they are very open to a seller carry. There is an existing mortgage on the property. I understand what you are saying on the full seller carry (full for no money down at least). This seems to keep things simpler. The objective for me is to have no cash of my own in the deal.

I'm also unsure how they would manage the loan on their end as it sounds like I would be doing a wrap essentially?

There seems to be enough equity although with interest and loan costs from hard money and the refi I wouldn't be able to pull all of the cash back out. Estimated to leave ~10k in the deal.

Lee Ripma · Answer

@Timothy Howdeshell

How is the seller willing to lend and at what terms? I would try to get them to carry the bulk of the PP and then use my money for the rehab. Do a cash out refi once the project is done. Also make sure there is enough equity in this deal...

How to structure seller carry no money down deal?

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