Alternative Financing now

[Account Closed]

These forums are amazing! Thanks so much for all the education being shared.

So with all of the changes happening to mortgage backed securities and the risk to servicers what are some of the more creative financing methods. Seller financing only? Please pardon my ignorance but the schooling here is great.

[Bradley Laddusaw]

If you are planning to do a value add, I would have to agree, a seller carryback can be a great strategy granted the property is owned free and clear or has sufficient equity.  If the seller is levered up too much, they are unable to carry anything back as the proceeds of the sale will need to be used to pay off their current lender.

What some of our clients have done is pair up a low leverage point private money loan from my Company with a seller carryback.  This allows the loan proceeds from our loan to flow to the seller, (granted not a lot of debt is recorded against the property) which allows them to get some cash "now" for their sale. Then the seller carries back a smaller portion, limiting their exposure while earning a return.  With our loan sitting at a lower leverage point, it comes with a substantially lower holding cost while our borrower is able to obtain a loan close to 100% LTP.  I have not seen too many sellers willing to carryback a majority of their sale.

This strategy will really only work if you are adding value to the property of which will give you the opportunity to pay off both the lender and seller through a final sale of the property.  If there is not a value add opportunity, as some of the comments above alluded to, you will end up over levered with no viable exit.

Full disclosure, you may want to run these strategies by your RE attorney to make sure there are no disclosure/lending violations at risk due to the seller carryback.