Purchasing Property with Seller Carry Back as Equity Instead of Debt

[Mike Lowery]

Hello BP Community! 

I am sure it has done before and I am not thinking too outside of the box, but in starting to structure syndication deals, it dawned on me that if you could find a seller willing to carry back some capital, you could provide equity instead of debt?

For clarification, I will use an example:

Purchase Price: $1M

Seller Carry Back: $300K

Loan: $700K

Instead of a traditional seller financing deal, where the seller would take a second position to the bank, why not offer them equity stake in the asset?

I understand this is not ideal as most sellers are looking for cash and would not keep equity in an asset just to relinquish operation?

But in the long run, the owner is more than likely cashing out the equity they have built in the property while also continuing to earn cash flow from the asset. Not to mention the equitable position that could be passed down or capitalized upon at disposition. 

Has anyone has experience with this? Pros and Cons? Things to watch out for? Am I crazy?

Thank you for your anticipated input!