How to approach a seller for zero downpayment

[James Denon]

I am interested in a 8 family in Springfield Massachusetts. It is an off market deal. The seller is willing to do seller financing with a reasonable rate for 70% LTV.

I would like to offer him this: I will get a loan from a bank for 75% and for him to carry a note for 25%.

So, I would be getting the property for zero downpayment.

Not sure how to approach the topic. I do have great credit and good income to cover the mortgage if anything goes wrong. I have decent track record as an investor. My property manager is great. The property is on the nicer side of town. It should attract good tenants. So, it shouldn't be hard to manage. 

I think he would have to be 2nd lien position on the property and the bank would be have to be first. So, if I default, he is at risk of not getting paid. So, he probably would want me to put down 10-15% to have skin in the game.

How should I approach the topic to get the deal for zero down?

[Andrew Johnson]

James Denon For what it’s worth, this feels like a real long-shot but you have nothing to lose by asking the owner. You could call 10 lenders, find one than bites with this idea, and then get a “hard no” from the seller in 15 seconds.

If it isn’t a “hard no” then there’s still a strong chance you get some pretty onerous terms on that 2nd lien. And they would be justified. In a highly competitive environment, a good market, etc. I’m not sure why: “hey buddy, here’s zero dollars and welcome to a 2nd position!” would hold appeal. Those terms could materially change any cash-flow projections you have. Not to mention they won’t (in all likelihood) not want to be on a 20 or 25 year amortization schedule.

Usually, I would assume you can owner-finance and then command a higher purchase price, higher interest rate, and still be in 1st position. But if you have a higher purchase price that doesn’t strike me as making a bank too happy. Debt service is higher (with both) which makes it more challenging to make the mortgage and with zero down you have very little incentive (without a full-recourse lone and assets) not to walk away. I mean a crushed credit report would suck but it’s not exactly hard dollars.

Anyway, expect the owner or their agent to say (with an incredulous tone): Why would I want to do that?!?!?!