Seller carrybacks

[Jeremy K.]

Hello to all...can someone help me understand how a seller carryback works. How does the bank that the holds the main loan look at it and do they even allow this on a commercial loan for a multi-family property? I do plan on putting money down (10%) and setting up a reserve fund but I don't want to put the whole 20% down. I would like to use that for other purchases.

What is the flow of money in the seller carryback? Does the seller pay the bank for the remaining required downpayment and then carries the loan for that amount to me? I assume the bank would factor the second loan into the normal property analysis like the DSCR?

Thanks for any info!

[Jon Holdman]

Mechanics is simple. Say you buy a property for $1 million. We will ignore costs. A bank will lend you $800K. You're putting in $100K and the seller is carrying $100K. The lender sends their $800K to the title company. You bring $100K in cash. The seller gets the $900K. You give the primary lender a promissory note and deed of trust (or mortgage, if that's whats used in your area) for $800K. You give the seller a second position note and deed of trust for $100K. You pay payments on both notes to each respective party.

Do you really have a lender lined up who will do a loan like this? Those are pretty sweet terms (80/10/10) these days. Lenders will allow this, but maybe more like 70/15/15. They want you to have enough in the deal not to walk.