Buy a Property with Seller holding Second Mortgage

[Eric Cecere]

Hello BP world. I am seeking some advice for a property we are considering purchasing.

The property is a quad plex (4 units) located in one building. All units are occupied at this time so it would produce rental income from day one. Gross monthly rents are around $2600. 

The asking price is $230K and the property would require very little rehab as all of the units have been upgraded within the past 2 years (new kitchens, bathrooms, paint and A/C units). The roof was replaced in 2010 so should last for many years to come.

Overall this is a good deal that we are looking to take advantage of. However, we were told that the seller of the property would be willing to carry a 15% second mortgage to anyone that can get a first mortgage of 85% from a bank.

In this scenario we would not have to put anything down aside from maybe some closing costs and sales commission (could be other minor expenses that I am overlooking).

We have always put 20% down payment and used private money to fund the rest. However, assuming we would get a low interest mortgage terms from the bank and the seller would have a second mortgage at maybe 7% would this be a good deal?

Our group has never dealt with a second mortgage in the picture. Obviously this is risky for the seller in case the buyer defaults.

Please help our decision by providing your opinion about this topic. Thanks in advance.