No money down option for Apartment building?

[Brent P.]

I am just trying to figure out if a strategy like this COULD work.

It seems that the requirements for down payment on a commercial, multi-family is typically between 25-30%.

I do understand that seller carry back loans are no longer permitted, but what about a 25-30% ownership in the LLC that I use to purchase the building? My thought would be to obtain transactional funding for that amount, have the seller cover it after closing, and agree on repayment for his x% interest in the LLC.

Now I'm sure that this has red flags all over it, but is anything like this feasible?

Thanks

[Darryl Dahlen]

Not likely, but the good news is there are still lenders who will allow seller seconds. From what I've seen, lenders have definitely scaled back on the amount the seller can hold. More than anything, this is to ensure you are injecting capital into the deal. In general, you need to contribute at least 10% of the purchase price, and if the seller is willing, they could feasibly hold a seller second for 10%. If the lender offers an LTV lower then 80% you would almost certainly have to come up with the difference. Of course there are always exceptions in lending so take this advice based on my experience and not an actual deal.

Perhaps there is a trend where lenders are not allowing seller seconds anymore, but for now, I know there are still some out there.

If you are looking to structure the deal so you don't have to put any "skin" in the game, then you're wasting your time if you are seeking conventional financing. Some will claim 100% financing is possible, but not using conventional methods.

However, IF you can line up a JV or an equity partner then you could feasibly close a deal with no money of your own, but that too is unlikely. For that to happen you would have to either find an absolute killer deal or bring a wealth of operational experience and/or be the actual contractor. From what I've seen, in those situations it is likely the JV/Equity entity will either cut you out of the transaction or wait until you fail and take the deal for themselves. It simply becomes cheaper for them to do the deal themselves and hire the help.

I am only addressing your questions and not any of the other issues associated with commercial lending that could have an impact on whether the lender allows a seller second or not.