Assuming you're purchasing something from family, you could easily get an owner carryback (aka second loan from the original owner) to cover down payment and closing costs. That way, you pay them back monthly unless you sell the property, and everyone wins. They get more money than they would have gotten otherwise, but over a longer period of time, and you get a little-to-no down payment.

 

A few years ago you would have had a ton of options. Now, with the market issues and the evaporation of loan programs, what you are looking for is becoming much tougher (and maybe impossible).

We just did a deal that was a distressed sale. We bought the property for $800K, it appraised for $1.4M. We came in with the required down payment of $160K, but after closing, we went to a bank that we do a lot of business with and opened a credit line that went up to 80% of the appraised value (less 1st lien amount).

Owe $640K from purchase transaction.
We have $760K in equity per the appraisal ($1.4M - $640K = $760K)
80% of $1.4M is $1.12M
$1.12M - $640K owed = $480K credit line

So, we can now get our original down payment back if we want, plus we have access to additional capital for a new project. Keep in mind, the property performs extremely well even if the credit line is fully extended.

You may have to structure your deal somewhat like this. Do you have access to money that you could use for a short period of time?

Also, depending on the property type and your financial position, you could potentially find a lender that will allow you to come in with as little as 10% down if the seller is willing to carry a 2nd lien.

In this situation, I would buy the property at the top price, come in with 10%, have the seller carry a second that could be satisified after closing (yes, its legal in commercial).

Example:

Buy for $700K
Put 10% down ($70K)
Have the seller carry a 2nd for $200K
1st lien amount from the bank would be $430K + $70K down = $500K net to seller

The seller can then opt to satisify the 2nd for you. We just recently did a deal like this as well. Keep in mind, this may cause some tax implications for the seller. Also, we have our lawyers draft all of the deals, so it ended up being much more complicated than this, but my description was the dumbed down version of our scenario.

Without a flexible seller, which it sounds like you have, your deal would be nearly impossible to get done. Otherwise, if you have other properties with equity, you may be able to cross collateralize to get the full amount that you are looking for.

Hope this helps.

 

Very good information Adam.
I hope Diane Kennedy can provide some information about the tax implications, as this will probably be seen as a 'gift' or 'debt forgiveness' by IRS.

 

Yes, and depending on what the seller's initial purchase price was and how they have handled the property from a tax perspective, it could create some capital gains issues.