Please help me understand this concept from Ben Leybovich's eBook

[Benjamin Shaw]

Hi BP!   So I'm taking a look at the eBook from @Ben Leybovich called 20 Ways to Buy an Investment Property with $2,000 or Less, which you can get here.

I heard ben on the podcast a few times, and his words really resonate with me, although I do not fully understand all of the terminologies that he uses so fluently. Take for example the excerpt shown below in which he talks about funding a deal via both a private lender and seller financing:

"OK – let’s say you are in fact able to find someone who’ll give you the money, but because you are such wildcard, they do not want to give you any more than 60% of the purchase price. In this case, you could structure the deal whereby the private lender gets a note and mortgage (deed of trust) in first position, while the owner takes back a note in second position."

I get the basic idea, but I do not fully understand the  last sentence "you could structure the deal whereby the private lender gets a note and mortgage (deed of trust) in first position, while the owner takes back a note in second position."

ELI5: What exactly does it mean for the "private lender to get a note and mortgage (deed of trust) in first position, while the owner takes back a note in second position." ?

Any chance anyone could break down this sentence so a 5-year-old could understand it?

[Michael Beeman]

@Benjamin Shaw

Holding a note (mortgage) are basically the same thing. They are a lien from a certain position on a property. Maybe it will help if i take a property i recently purchased and give you an example of how to use this. As in all instances, definitely do not try to do this without consulting and using a qualified real estate attorney. 

@Ben Leybovich please step in if the following example does not follow your meaning. You're certainly a more qualified and experienced teacher. 

Example:   I want to purchase a 4-plex. I have already evaluated the deal and recognized it is a great deal. And I have multiple exit strategies at the end of it. I know that I do not have the financing. So I find a private lender who is willing to finance 60% of the property cost, but only if he has a first mortgage (note) on the property.  

Now I have 60% of the total property financed.  Next I approach the seller and say, "I would like to buy your property, and I can give you 60% of your asking price up front, and I will need you to give me a loan for the other 40% as a second mortgage against the property"  

The seller may not like this. But, you can help "sell" the idea to the seller in this manner.  "If you (seller) would do this, you will still hold a lien against the property that I intend to manage and handle all of the day to day operations and maintenance issues. You will no longer have to be involved. Plus you will be receiving the asking price (or whatever negotiated price can be agreed upon) in full. With basically 60% of the money up front, and interest plus the balance on the rest of the money."  .. I might also tell the seller, it's kind of like he refinanced his property to get 60% of the value out of it, and he still has no more burden of running the day to day operations.

There are a lot of different way of "selling" the seller on this concept. And, you will probably have to. Most sellers want all of their money up front. But, many sellers realize that there aren't a lot of buyers for their particular property.  And getting 60% up front, plus a 2nd mortgage and interest on the other 40% is an interesting option.  

I hope that helps. Ben is certainly a better teacher than I am. I would recommend really diving into your studying of his and other real estate teachings before making a leap of this kind.