If this all goes well and then I decide to transition to new construction - I'm wondering how banks would see a holder of a multi-family property and collateral for a down payment on a construction loan.

I've been able to cross-collateralize on existing notes, financed no money down deals, and obtained a large unsecured credit line all through smaller community banks. 

Here is the situation:Borrower Looking for $100k for business purposes in San Diego Ca.I would have a 3rd position lien on his investment home at 85% LTV worth 1.2m currently.This same home in 2008 was only worth $800k which would mean my lien would be worthless.Borrower has agreed to let me cross collateralize against his owner occ( would be 2nd lien position at 85% cltv and business and personal. 

AND make sure you collateralize your money appropriately if you ultimately decide to move forward with her.Best of luck!

There could be so much goodwill that the building will not fully collateralize the loan and additional collateral would be needed.For the seller note to count as equity for your loan it must be on standby (no payments) for the life of the loan.

Equities in Properties You could use the actual asset as a down payment, borrow against the equity, or use the property as additional collateral.

Unfortunately I can not find a lender that will give him a loan based off of his income and credit and using the property as collateral.

In full disclosure, I DID use a couple small low value properties as collateral that I wouldn't be able to get loans against anyway (south Warren $30k houses) but I also walked away with money in my pocket and access to a substantial Line of Credit with the bank to build a third building or finance other ventures.

I don't want to put up personal property for collateral. 

Show the seller what he will receive over the period of owner financing --if seller took back $100,000 @ 8% interest, interest only payments, paid monthly with a balloon at the end of 60 months - would look like this 8% x $100,000 = $8,000 a year ($666.66 a month for 60 months = $40,000 plus the principal balance in a balloon payment of $100,000 - so the seller get his equity of $100,000 plus $40,000 in interest) these facts can be very motivating.Seller needs to know about capital gains and the benefits of seller financing and installment reporting.Seller can use the financing note as a down payment or other real estate or sell the note at a discount.Seller can split the note - 4  $25,000 notes or 2 $50,000 notes - again these notes can act as down payments  deposits on other real estate, sold or retained as monthly income or given to relatives as gifts.When seller financing is accepted - you may want to consider the following agreements or clauses:Always build in a discount in the event you pay the note off early (big savings here).Always make the mortgage a First Subordinated mortgage - this means that if you refi - you can place the seller's mortgage in 2nd position - since a lenders usually wants to be in first position.Make that mortgage fully assumable with release of liability - that means when you sell the property, your buyer can assume it, and you are released from the obligation (this is good)When selling the property - you can do a wrap-around - meaning if your interest to the seller is 5%, you can wrap the mortgage at a higher rate - like 10% - that means you are making 5% on money you owe - this is sandwiching the mortgage (this is good - never stop negotiating)Build in a clause that allows you to walk the mortgage to another property with equal or greater equity - this is called substitution of collateral.