Equity Line of Credit on Owner Financed House

[Alex Jackman]

I am looking to acquire a $500k 6 unit apartment building. One of the options to purchase the property it through owner financing ($2,300-$2,400 per month for 20 years 0% loan). If I purchase the apartment building using owner financing, I am curious if a bank will allow me to take out a line of credit or mortgage against $350k of equity and use it as:

a) funds for renovation AND (~$50k)

b) down payment (~$300k) for another ~$1.2M apartment building

In this scenario, I would then have a note with the owner of the 6 unit apartment building, a line of credit against that same property, and a loan against a new property. Will banks allow this type of lending? Will they ask about any private notes against the property? Do I have to disclose the owner financing? Will this owner financing come up during title search? Can I have the owner financing be a unsecured note? Will this note ever show up on my credit report?

Thank you in advance for the help!

Best,

Alex Jackman

[Alex Jackman]

@Rick Pozos Respectively, I think you completely misunderstood my use of a 0% interest loan with the seller. If you understand how zero interest bonds actually work in the bond market, you may be one step closer to understanding this situation. Let me clarify and prevent further confusion for you. 

Let's say I get a $100,000 loan for 30 years @ 5% interest. At the end of 20 years, I personally elect to pay off the entire loan? What yield did the loaner get? He lent $100,000 and received 239 payments of $536.82 and then one final payment of $50,936.85 (the remaining principal). This provides an annualized rate of return of 5.11% 

Now, let's say I want to offer an identical yielding note, but with a 0% 20 year note. How much would I need to "pay" for that identical yielding asset. Well, we inflate the value of the loan to $158,210. The owner still gives me a $100,000 asset, but I owe him $158,210 over 20 years, so I make payments of $659.21 every month for 240 months. What yield does this transaction bring the loaner? You guessed it 5.11%

NOW, which asset is better for the loaner? Answer: the 0% 20 year note

If I decide to refinance tomorrow and pay off the 0% loaner I need to pay him $158,210, but if I were to have the 5% 30 year loan I would owe the loaner only $100,000.

So I would argue, yes, the 0% note is in the best interest of the home owner. He owns a large portfolio and wants to stop managing all his properties. I offered him $450,000, but he was hesitant about the price. Therefore, I am offering a 0% seller finance for the length of his retirement. He will be paid out the $450,000 plus interest (it's just the interest is baked into the principal). If he wants more than $450,000 then I will offer him $450,000 plus 5% interest over the next 20 years, but with the 0% route I guarantee him at LEAST at 5.11% yield on the note. If I repay early, his yield goes ways up and HE benefits. 

I work in treasury. I deal with the capital markets everyday and understand financing and yield at an advanced level. Furthermore, I pride myself on being an extremely ethical and genuine human being. I must say I took tremendous offense when you painted me as a scammer and deceiver. 

I thought this was an open community, where questions like this can be asked an answered.

To address the second lien. If a second lien position is what is needed, then I will look for a lender who will do this. But my plan was to have an uncollateralize promissory note with the seller. Then I was not sure if I had to DISCLOSE this note to a bank. If your grandma gives you a $100,000 loan, do you have to disclose that when opening a credit card, personal line of credit, HELOC, mortgage. Maybe yes maybe no. Maybe you could answer that for me as well.

I am not scamming nor deceiving. I am trying to leverage my dollars as much as possible while rates are so low. 

****(May I just add, I recall a biggerpockets podcast where Brandon mentioned he used a 0% loan with a seller financed property. If I am recalling correctly, is Brandon also a scammer using your logic?)****

Lastly, If you would like me to provide you some references to books about debt markets, I would be happy to provide you with a list.

@Wayne Brooks