Can I do a loan and seller finance on a deal?

Question

There is a storage complex, purchase price is 550k. The owner decided he wants to owner finance a 400k down payment and carry the note on the remaining 150k. Could I get a commercial loan for the down payment and let him carry the rest. Is that possible, with multiple liens on property. And help on this please.

Nathan Grabau · Answer

Yes this is possible. If you find a bank that will carry the loan based on the income of the property, you can normally get this on 80% of the value of the property. Then you can get an owner carry on whatever the owner feels comfortable with carrying back. Typically this is up to 90-95% of the value for all debts on the property(bank carries 80%, owner carries 15%). Most owners will not owner finance a property to 100% of its value, because then you have no skin in the game. The way liens work is they are assigned a priority, most often by the date that they are added to the property.

Here is an example of how this commonly looks

You put 5% down, or $27,5000

The commercial bank loans you 80% or $440,000 at the first lien

The owner carries back 15% or $82,500 as the second lien

You can modify the numbers here, so long as the bank and owner approve of it.

The main issue you would run into here, is the bank will want to be the first lien position. If the owner wants to be the first lien, that will be hard to overcome. Especially if the owner is expecting you put $400,000, because their remaining $150,000 they are loaning you is much safer than if you only put 5% down.

I would also be careful getting this leveraged depending on the cashflow of a property. This might be a requirement of the bank too, that you be able to service the bank loan and the owner carry back at a specific DSCR ratio. There are deals that I do, where I meet my banks DSCR requirement (1.25) with 20% down, but I could not meet the banks DSCR requirement if there was even a 5% owner carry. This might be frustrating, but the safer the bank makes the deal for them, the less risk there is for you in the deal as well.

Jared Rine · Answer

@Cody Burke If this was in CA, I could get this done with no money in as long as the LTV on their 1st loan is 65%, and all parties agree.

Would look something like this, to wrap your head around:

$580,000 purchase price

$377,000 - private money (1st)

$150,000 - seller carry (2nd)

$you bring in difference = $53,000 (obv + closings costs/fees/etc.) - like 10-15% of the deal

That's how it would be.

Nathan Grabau · Answer

You could potentially get the bank to carry the whole 400k. The will typically only lend up to 80% of the value of the property, which is up to 440k in this situation. The issue you are going to run into is the owner of the property might not want to owner finance as a second lien up to 100% of the property's value. If the owner wants to be the first lien, most likely you will only be able to get a bank to loan you another 290k. (440k-150k).

So the way the bank would want it is if you default: Bank gets all their money back, the owner gets the rest

The way the owner might want it: Owner gets their money back first, bank gets the rest

If the bank gets to be first in line, they will most likely give you up to 440k. If the owner gets to be first in line, the bank will loan you 440k, minus whatever the owner has loaned you.

Cody Burke · Answer

@Jared Rine thanks for your insight. It’s in Arkansas. I’ll let you know how it ends up.

Hannah Leiker · Answer

Congrats on finding a facility to purchase! How did you find it? I'd be interested in hearing the results of the financing.

Alex Roter · Answer

Hey @Cody Burke, I've come across commercial lenders who offer storage complex financing. Typically, you may see a lender allowing for an 80% Combined Loan-to-Value (CLTV), leaving the remaining 20% of the purchase price that needs to come from your own personal assets (your "skin-in-the-game"). The seller can also contribute towards non-recurring closing costs, typically around 3% of the loan amount.

Here's a breakdown of how you can structure this deal:

Purchase Price: $550KDown Payment: $110KSeller Finance (2nd lien position): $150KBank Loan (1st lien position): $290K

Cody Burke · Answer

@Nathan Grabau thanks for your response. I’m trying to get wrap my head around this. It currently appraised for 580k. But the owner won’t accept a full offer. He wants to finance 150 of that.

Cody Burke · Answer

@Ronald Rohde sorry for late response. I have a business partner. This deal didn’t work but we have another under contract. Would love to work with someone in future for private money on purchase.

Cody Burke · Answer

@Hannah Leiker Sorry for the late response. We didn’t end up purchasing that one. The seller ended up not wanting to sell. But we did find another one and under contract. We found it by networking on a deal that didn’t work out.

Ronald Rohde · Answer

Can you partner with someone else for funds? Have you run SS before?

Can I do a loan and seller finance on a deal?

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