Has anyone actually closed a 70/30 senior + seller-carry deal?

Question

I’m curious how people are actually structuring these deals in practice.

I’ve been looking at multifamily / small commercial residential acquisitions where the seller is open to carrying part of the purchase price, and the structure would be something like 70% senior financing with the seller carrying the remaining 30% in second position.

What I keep running into is that a lender may say seller financing is allowed, but once underwriting starts they still want a meaningful buyer cash contribution on top of that, so the structure no longer really works the way it sounded initially.

I’m also curious whether anyone has closed something closer to 75% senior financing with a 30% seller carry, where the extra senior proceeds helped with legitimate closing costs, assuming the deal still fit appraisal, DSCR, LTC/LTV, and lender guidelines.

Everything I’m talking about would obviously be fully disclosed to the senior lender, seller, title/escrow, and attorneys. I’m not talking about hiding subordinate debt or trying to get around underwriting.

Has anyone here actually closed a deal with a meaningful seller carry behind the senior loan?

If so, I’d be really interested in hearing how the structure worked, what type of lender was involved, what the senior LTV/LTC looked like, and whether any closing costs were financed.

I’d especially like to hear from people who have done this on 5+ unit multifamily rather than just 1-4 unit residential.

Jay Hinrichs · Answer

these are a pipe dream.. U might find a lender that will not require the borrower to have any skin the game only equity.. construction loans pre GFC for experinced builders this is SOP.. not even seller carry back just straight equity loan and since the builder had 20% equity day one banks did 100% .. but that all changed and I dont know any bank that will do loans without borrower putting in cash..

Bill B. · Answer

Are you talking strictly off market deals or are you expecting the seller to lose 10% or more (between commissions, closing costs, transfer fees, etc etc.) if you fail to make payments for more than a year or two? The realtors are going to want their 5%+ off the top, is the seller paying that too and losing money to sell?

The only way I see this ever working is if the seller is pretty sure he’s charging you 20-30% over market value. Then they can afford to take the risk. Especially if you have any assets they can sue you personally for.

Jay Hinrichs · Answer

Agreed bill this could work in D class ghetto type units. but nice B class and above its a pipe dream

OP, lenders are going to want to see 20% or so skin in the game on MF these days.,

Chris Seveney · Answer

As Jay mentioned its a pipedream and if i were to put a success rate to somethign like this it would be at or near 0%. There is no chance someone can manage 5+ units without having atleast $50,000 in reserves. That may also be very low. I recently took back multi million dollar portfolio from someone because they were doing this on their projects and we had a lien on another property. They fought like heck to not let us foreclose and ended up having the debt be more than the property (if they would have listeend to us they would have walked away with around $2M - instead they walked away with nothing). We ended up striking a deal to have them hand over their entire portfolio where they did have some properties with equity and let the 100% levered ones remain with them.

This rarely if ever ends well

Bryce Axelrad · Answer

Eduardo, yes, I have done many of these. The seller carries a second lien behind the senior lender, so the senior lender keeps first position.

That doesn’t mean the seller note gets ignored. Its payments, balloon and the total debt still need to fit the lender’s guidelines.

Where you can run into trouble is with lenders that sell their loans and have to meet an investor’s requirements, or need approval under their servicing arrangements. I know lenders who allow seller seconds. The question to ask upfront is whether they allow your full 70/30 structure without additional buyer equity, and what cash they still require for costs and reserves.

Bryce Axelrad · Answer

Yes I do. This is worth a call as it's a pretty complex structure if you can reach out in my direct messaging i'd like to know a bit more about your situation so I can properly advise you in terms of lenders.

Eduardo Cambil · Answer

Bryce, that’s really helpful. Since you’ve done many of these, do you know any specific lenders that will actually allow the full 70% senior / 30% seller second structure without requiring additional buyer equity on 5+ unit multifamily?

Even better if they're comfortable with strong DSCR deals and only require reasonable closing costs/reserves.

Even better if they’re comfortable with strong DSCR deals and only require reasonable closing costs/reserves.

Eduardo Cambil · Answer

Don, this is exactly the kind of answer I was looking for. I appreciate the distinction between possible and common.

A few practical questions:

In deals where the seller carried the balance behind the first, what senior LTV did you typically allow?

Did you still require buyer cash into the purchase?

What post-close reserves did you require?

Roughly how much more expensive was the first lien?

Also, your point on deal flow is interesting. You mentioned seeing around 600 deals a year. Where do most of those actually come from: broker referrals, bank turndowns, attorneys/CPAs, direct borrowers, wholesalers, etc.?

And would you personally consider a strong 5+ unit deal with 65–70% first lien + subordinated seller carry + solid DSCR + meaningful reserves?

Don Konipol · Answer

First, the “lenders” you state that say seller financing is allowed are either speaking of a situation where the borrower is still putting 20 -25% down, or if they’re talking about 100% of purchase price financed they’re probably mortgage brokers, not lenders. If mortgage brokers they’re either inexperienced or practicing a “bait and switch” tactic.

Now to the Nothing down with owner carry for the “difference”. First, you need an owner willing to carry a SUBORDINATE lien, and therefore have a large first ahead of them. So, we need to look at what their motivation might be. One, may be obtaining an ABOVE market price (not appraised value, actual cash sale price). Another might be to sell a property that’s just not very desirable, vacant, negative cash flow, in a “war” zone, in a declining area, etc. So unless the borrower knows something the seller and everyone else doesn’t, or has a superior plan for property repositioning, these aren’t the properties most investors should consider. Investing because you got in cheap results in a very expensive lesson.

But, let’s say an investor somehow finds a “good” deal at a “fair” price and I as a lender decide that yes, I will provide financing at 65% and allow the seller to carryback the difference. What’s MY motivation? I mean I could lend on a similar property with the borrower having 35% skin in the game and my risk of default going down about 75%. The motivation is that I’m able to charge more points and a higher interest rate. So the borrower/investor now pays 30% more for the first lien borrowing then he would making the “standard” down payment.

These type creative deals CAN be completed on good property at fair prices and good terms, but it’s similar to finding a needle in a haystack. Two things stand out, first if you’re not out looking you’ll probably never find; second the chance of “finding” this deal and putting it together are so low it’s probably not worth pursuing, but it is worth keeping this strategy in your pocket in the event you happen to run across a deal where you can use this structure.

The key is deal flow - not the MLS or commercial equivalent that everyone and his brother has access to online, but a more UNIQUE source. Our deal flow for both our private hard money mortgage loans AND properties we end up purchasing or taking an equity interest in are borrower looking for mortgage financing where either they or the property doesn’t qualify for institutional money. We receive about 600 deals across our desk annually; we provide mortgage financing for maybe 15- 20 and purchase 2 or 3 outright.

Eduardo Cambil · Answer

Totally fair point. I’m not assuming this is standard bank financing or that every lender will accept zero borrower cash.

What I’m trying to find is whether anyone has actually closed a fully disclosed 70% senior + 30% seller carry structure on 5+ unit multifamily, where the seller note sits behind the senior lender.

I’d also be interested in non-bank commercial lenders, debt funds or portfolio lenders, not just banks.

In the deals you’ve seen, when seller carry was involved, what was the minimum actual cash contribution the senior lender still required from the buyer?

That’s really the part I’m trying to understand.

Has anyone actually closed a 70/30 senior + seller-carry deal?

Has anyone actually closed a 70/30 senior + seller-carry deal?

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