Investor · Charlotte, NC · Member since 2026 · 9 posts · 2 votes
I have some questions about the Morby Method
Hi everyone
I have some questions about the Morby Method. I have an idea of how it works using sellers in second position. If I wanted to hold some money from the loan for repairs or incase of something, how would that work? I kind of have an idea but I’m not 100% sure.
@Chambers M Leandra Noah's right, the first lender won't let cash leave closing. Where you can find room is in the seller's note. Say it's $200K, the DSCR lender does 80% ($160K) and the seller carries $40K. Ask for no payments on the seller note for the first 6-12 months. At 6% that's about $200 a month you keep, $2,400 over a year, without touching the first.
The bigger lever is price. If the work is $15K, get it into the price, since that's cash you don't have to bring. Whatever you agree to, every term has to be disclosed to the first-position lender.
Smart to plan the cushion before closing, that's where a lot of these deals get tight. On a purchase, most first position lenders won't let you walk away from closing with cash, so there's usually no way to pull extra out of the loan and park it. Repair money normally comes as a rehab holdback, which is common on hard money and bridge loans and rarer on DSCR purchases. The lender holds those funds and releases them in draws after inspections, often reimbursing work you've already paid for. A just in case fund usually has to be your own money, since most lenders won't count borrowed funds as reserves. Does the house need work before it can rent? That decides which loan fits.
@Chambers M Leandra Noah's right, the first lender won't let cash leave closing. Where you can find room is in the seller's note. Say it's $200K, the DSCR lender does 80% ($160K) and the seller carries $40K. Ask for no payments on the seller note for the first 6-12 months. At 6% that's about $200 a month you keep, $2,400 over a year, without touching the first.
The bigger lever is price. If the work is $15K, get it into the price, since that's cash you don't have to bring. Whatever you agree to, every term has to be disclosed to the first-position lender.
Since it needs work before renting, I'd map out the cash needed through the first rehab draw. Ask when funds are released and what you must pay first. Have the first lender approve the seller second and every funding source in writing before assuming the structure leaves you repair money.
Chambers — good question, and the short answer is the part people trip over: your first-position lender is not going to let loan money walk out of closing and sit in your pocket for repairs or a cushion. That's not how they think.
Here's how the pieces actually fit together. The seller second solves the down payment, not the repairs. Repairs get funded by a bridge loan with a rehab holdback — the lender holds the repair money and releases it in draws as the work gets inspected — and then you refinance into a DSCR loan once the place is rented and stabilized. The DSCR refi qualifies on the property's rent, not your pay stubs, so the "how do I prove income" worry mostly goes away at that step.
The cushion has to be your own seasoned funds. Borrowed money doesn't count as reserves, and a lender who finds out your cushion came from another loan is going to have feelings about it. And the one rule I'd tattoo on this whole strategy: line up the takeout before you close the bridge. A bridge with no exit is just an expensive countdown.
If you want, I'm happy to be a second set of eyes on the numbers — what the repairs run, what the rent needs to be for the refi to work. Either way, get the house rentable first; everything else gets easier after that.
Hi Leandra, since the house needs work before it can rent, that's the detail I'd build the plan around. DSCR lenders underwrite mainly on the property's rent covering the payment, so a house that isn't rentable yet is often a poor fit for a DSCR purchase as is, which is why a lot of people buy with a rehab-style hard money or bridge loan first and move into DSCR once it's rented. On a Morby-style deal the seller's note sits on its own contract, and the first-position lender has to know about it up front, because hiding it would be fraud. Before you count on a seller carry for your repair cushion, confirm the seller has enough equity to carry a second position at all. Then ask each lender early whether repair money comes as a holdback released in draws, and where they want your reserves sourced, since reserves are a separate question from seasoning.
Good question, Chambers — and I like how the answers here keep coming back to the same thing: the cushion has to be planned before closing, not pulled out of the loan at closing. I have not run a Morby structure myself — my lane is subject-to, like the house hack I took over at 2.25% — but the lesson carries over: if the house needs work before it can rent, I would want the repair money and the first months of payments mapped out in advance, with every term in writing and disclosed. What does your reserve picture look like once the work is done and before the first rent comes in?