Seller Carrying a Note as Buyers Down Payment for HML

[Manny Cirino]

I was going through a few case studies today and came across a strategy I have never heard before. Strategically it sounded great and theory and this was an authentic case study(personal success stories no guru BS).

The investor spoke about flipping a property using a HML, he explained how he had the funds for holding cost and intitals upfront points but not for the 30% down payment he was required to pay, instead he says he got the seller to agree to carry the note on his downpayment since it would be a short term.

The question I have regarding this is:

1. is this a common strategy used?

2. has anyone here used this strategy?

3. would most HML even agree to letting the seller holding second possition.

4. if possible what are things to look out for(calculations, interest, etc).

Any input and insight would be appreciated.

[Travis Sperr]

@Manny Cirino

This scenario is possible but not likely. It is possible to get a seller to carry part of the deal, this has to do with how good of negotiator the buyer is, private seller with an off market deal - might work. Anything on the MLS is very unlikely.

Most HML's will not allow a second lien position. This is really based on your area and market for lending practices. Much easier to get this done with a private money lender that you may have a relationship with rather than a HML that is more savvy and cynical :). The reason for me is that with a second lien holder if the deal goes bad I have to go through a full foreclosure and there is no opportunity for a deed in lieu, this slows down and mucks up the process of getting the money back to work. I don't have a down payment requirement, so a second in our business would mean the deal isn't strong enough.

When you ask about running the calculations, it is the same as any other deal. you need to look at all expenses vs income.

Most people selling a house are selling it to use the money for something else, in a high equity position, what would a seller want in lieu of the cash now? a return on their money? a piece of the profit? a pretty risky position for the seller carrying the second.