Question on Note Structure

[Lindsay McLaughlin]

Hello BP community....I have a few properties I'm discussing with another investor to sell them to him with owner financing.  They are turn key rental properties, cash flowing.  I would allow the note to season and then be looking to sell the note down the road.  The terms of the note would be 8.5% interest, 30 year term, with 10% down payment.  However, he has other rental properties nationwide, and he is requesting the 10% down payment be put into another note for a short term...like a 3-5 year note at a high interest rate.  Would this benefit me?  Could I still sell my first note on the rental properties showing 10% down payment?  Would this decrease the value of this note?  Could I sell the note on just the down payment, and at what kind of a discount and would it be considered a 2nd lien on these properties against him?  I would love to make this deal work for him and I, but it certainly makes me nervous....any insight would be greatly appreciated.  I've been active in notes for over a year, but not in this situation and for some reason can't wrap my head around it to know for sure it would be a profitable sell.  Thanks!

[Bob Malecki]

I agree with @Travis Sperr this is a higher risk at 100% financing. I always have my borrowers put some cash down to help mitigate future default. Another idea in lieu of this would be to have him/her cross collateralize that down payment in FIRST position on another property they own, either one of their investment props or even their own home. This way if they default, you have 2 props collateralized for collection.  I would prefer a cash down payment, but a first mort. on another property would be a second preference if you have to make this work in your favor. 

Bob