Seller Finance the Downpayment?

Question

I met with the more experience investor yesterday over coffee. I asked him about a potential ￼￼8 unit deal. We talked about seller financing and he suggested that I ask the seller to carry a note for the down payment and a small reserve. Then go to a local bank for a commercial 75% LTR loan. The seller would have a 2nd behind the bank. Have any of you done this? Are banks open to it?

Mack Benson · Answer

I know of a handful of investors who have been quite successful with seller financing. Having a seller carry the entire down payment may be a stretch though. I think most banks would want to see you have some skin in the game, probably at least 10% of the down payment but that may depend on the purchase price and the DCSR. However, the bank would be in first position on the note so that may make them feel more secure, I'd run all contingencies past your loan officer with your bank.

I don't think getting seller financing should be your first goal though, it can make a buyer look desperate and, from a sellers point of view, unlikely to close. The seller financing topic should come up during the conversation with the seller based on their situation and the property and finally your situation.

Rather than going in with the seller financing guns blazing, do you have an opportunity to partner with anybody for the down payment?

Simon W. · Answer

So is this like a $0 money invested type of deal?

I can't say if banks are open to it, because there are a lot of banks. However, they will do a strict analysis on the property income to debt to see if it can cover their loan and the seller's.