How To Structure Deal With Mortgage AND Seller Financing

[Juan V Lopez]

I have about $200K from a 1031 to re-invest before end of November 2021. Typical commercial loans require 25% down (or 20% down with higher rates) – meaning the highest I can purchase using the $200K alone is about $1 mil (at 20% down).

I'm looking at a few properties/portfolios above $1.25 mil.

From my knowledge, the most obvious way I could make this happen is to put the $200K down toward a mortgage and then ask the seller to finance the balance.

How would you structure this? How would you approach a seller with this sort of proposition?

Thanks in advance BP.

[Caroline Gerardo]

In order for seller to accept this risk you have to offer them something that makes your offer better than everyone else. Everyone else is offering qualified deal with 25% down and they walk with all their cash. You need to offer them a very high interest rate of return for the risk of low down and not qualified, you won't be able to refinance without the equity and the seller will know their only option in non payment is foreclosure. 

Offer them 12% interest rate 30 year fixed, with prepayment penalty of 2% if you don't give them a 6 month advance notice of early payoff. 

Who is seller? Family members may want their money and you will need to add in some pay downs to them in a year...  Maybe they have owned it a long time and capital gains are an issue as they were for you? Unknown as to the correct answer - it depends on the seller's desires, plans, tax situation.