Is this possible?

There are two owner financed properties for sale near me. One is a four unit and the other a 16 unit. Both owners are asking for a downpayment and will hold the note, interest only with a five year ballon. I would prefer that either owner take a 25% second and I obtain a bank financed 1st at 75%. I would like to know if my idea is valid and if so, does anyone know of a lender that would do this type of financing?
In Buying Property - Asked by k P. - Sep 11, 2011
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Answer(s)

Bruce K.
Corporate Investor
Riverside, CA

Yes, it's quite possible. But are you confident that you can get a 75% loan from your bank in this economy? Many banks are offering very low LTV's on commercial properties. Some as low as only 65% or 70%.
So that's your first step. See what terms you qualify for from a bank on the first loan. The bank typically won't care if the owner takes a second loan on the property. As long as the bank is in first position, they are protected. Then see if the owner is willing to make a second loan for you.
Be advised that if the owner agrees to take a second position loan on the property he will expect a significantly higher interest rate on his loan because of the added risk involved with his subordinate collateral position.
So, your first position bank loan might be at 6%, but your seller carried second loan may be at 9%.
Compare that with the interest rate the seller is offering in order to carry the entire purchase price, you just might be better off with one loan (from the seller) at 6.5%.

Sep 13, 2011
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Lloyd K.
Broker/Agent
Phoenix, AZ

You are asking the seller to be in 2nd position and take all the risk of a zero down 100% leveraged deal. They would have to be very desperate to do this. It is also more risky for the conventional lender in 1st position and they typically knowingly won't allow this either.
Lloyd

Sep 13, 2011
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Ross W.
Broker/Agent
Northbrook, IL

It's difficult to find a lender that will allow a 25% seller second mortgage, effectively meaning you have no equity in the deal. Assuming you have the 25% to put down, and you are not over paying for the right to get seller financing, you should be able to finance your seller out of their mortgages in 5 years, but you may be keeping your equity in the deal for longer than that!

Sep 14, 2011
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Chris R.
Broker/Agent
Denton, TX

Anything is possible - you would have to contact lenders and ascertain if they would lend on those terms. In essence - a 100% loan. Not sure there are such lenders out there. Most want to see the buyer have some "skin in the game".

Sep 20, 2011
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