A loan with money back from the seller

[Katherine Roberts]

Hi,

I’m new to real estate investing. I found a duplex I’m interested in and I want to make an offer. It needs a new roof and one of the units had some water damage so I’d need to redo the cabinets and floor. I figured I would go ahead and put new countertops and backsplashes in as well. 

It cash flows slightly at 325k but I’d like to get it closer to 290k so that I can do the renovations and roof. I plan to put 20% down and get a loan for the rest. 

I have seen a few videos about creative financing and making an offer for a certain price and then the seller gives you a check at the end. For example, I offer 325k but ask for 30k back for the roof and fixing water damage. I feel like I’m missing something. How does that work? What do I say to a loan officer? Any advice on how to make the deal work?

[Matt Devincenzo]

If you do this for a repair hold back then it is a 'seller credit' on the closing and typically there are limits on how much as a % that can be. This is a very traditional way of making an offer, and your agent should be familiar with the way to write this up. I did one for a septic decommissioning on a home I sold. The $2,500 was included on the closing as a credit and then the work was completed after the closing due to timing etc. 

What you're mentioning sounds like you may have seen a Pace Morby "Morby Method" video. I've said it before and I'll say it again, there is no way to do that transaction as he outlines it and it not be mortgage fraud. You can do what I described above, or get a purchase plus rehab loan to accomplish your goal. But getting the seller to kick the funds back to you outside closing is mortgage fraud.