question about financing

[quynn]

Hello,

If a seller is willing to hold the note but wants 40% down, can you borrow the 40% from the bank? If you do this how is it done? Thanks

 

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[yveskleinsky]

You could borrow the 40% through a personal loan. ...Banks generally don't like to loan money if they know it is for the down payment. Another option might be, instead of having the seller finance the 60% and you come up with 40%, have the seller carry the down and have the bank finance the rest. ...Or you come up with some percentage, as does the seller, as does the bank. You could also do hard money.

 

[RealOG]

Getting favorable bank financing is difficult if there is any seller carryback involved.

You might want to ask the seller if they will take a second on another property you own, or even give you unsecured loan. The banks I have dealt with didnt care as long as it wasnt secured by the property.

I would avoid doing anything outside of escrow (like a "silent second"). Its legally risky and in this day and age with all the foreclosures, the Fed is not likely to take kindly to people who play these sorts of games.

RealOG

 

[Adam]

I would avoid doing anything outside of escrow (like a "silent second"). Its legally risky and in this day and age with all the foreclosures, the Fed is not likely to take kindly to people who play these sorts of games.

RealOG

In the residential world, you are correct. However, in commercial finance, there is nothing wrong with seller financing. It is very common and actually provides a sense of security to the 1st lien holder. The train of thought is, if the seller is willing to stick around, they must have faith in the buyer and the overall transaction. The Fed doesn't care and no one looks at it as a "game." Seller financing is a very valuable tool in the world of commerical real estate financing.

Quynn, in your situation, two years ago you would have been able to go to the lender for a 40% 1st lien and have the seller provide the remaining required financing or equity. Now, due to the increased instability in the market, most lenders have a minimum "owner equity requirement." Meaning X% is required to come from the buyer in the form of cash.

I just set up a simailar deal for one of our projects.

The lender was willing to provide financing at 60% LTV. However only 10% was available for a down payment. We requested that the seller provide financing in the amount of 30% of the purchase price. This was an easy solution to the problem. Lender LTV requirements were met and a reasonable return was provided to the seller.

 

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[randallg99]

The lender was willing to provide financing at 60% LTV. However only 10% was available for a down payment. We requested that the seller provide financing in the amount of 30% of the purchase price. This was an easy solution to the problem. Lender LTV requirements were met and a reasonable return was provided to the seller.

Adam,
I am working on a deal now that was affected by recent lending market contraction... can you disclose real dollar amounts and terms (rate and length of time) the seller agreed to?
Thanks,
R

 

[LouisvilleLambo]

However, in commercial finance, there is nothing wrong with seller financing. It is very common ...

:iamwithstupid:

I have done it on more than one occasion. Provides a better ROI too :smxB:

Important rule of investing... "Other peoples' money!"

Dave

 

[Adam]

Hi Randall,

I appologize for the delayed response, I have not been on the forum for awhile. The market has been crazy and we have been working long days to take advantage of it.

Anyway, the seller financed amount was just over $9M. The rate is floating at 100 bps over the 12 month LIBOR index and the note is structured at at 5 yr term with a 25 yr am schedule. There are no pre-pays either.

This is A LOT to ask for, however, it worked perfectly into the seller's short-term cash-flow strategy. In most situations, the seller financed amount is less than $1M with the rate at or just above Prime. Keep in mind, the above scenario was also a distressed purchase.

 

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