HELP! What Kind Of Note To Create? Who Buys Notes?
Hi,
I am considering purchasing a commercial property, and to avoid paying a very high down payment, am thinking of financing the last 20% of the purchase with a seller carryback mortgage.
The problem is, the seller doesn't really want to carry anything back, so what I'm attempting to do, though I don't know how to do it, is basically present the seller with the following type of proposition:
"You take a note for $140,000, paying 10% interest, with a balloon payment for the full amount in 5 years. I will pay interest only on that amount. After 3 months, the note can be sold to a note buyer for $XX amount. So, basically, I am asking you to accept 80% of the purchase price at closing, and 20% three months later."
My questions are:
1. Who writes/creates such a carryback mortgage in the first place? Is it just a formal agreement that both of us sign, or does a mortgage broker/agent...whatever, create it so that it has the lien on the property etc.
2. Who buys such notes? Can I offer the seller such a deal, with a guarantee that in 3 months (or less, whatever the note buying agency requires) he will get his full $140,000 less, say, $10,000 for selling the note at a discount? I found one website, noteone, but it only offers to buy notes secured on properties up to a quadplex, but in this case, I am looking at 20-40 unit properties.
I tried to post this in the commercial area, but that part of the website seems closed down at the moment, and goes to a "website unknown" sort of page.
Glad of any help.
If you are trying to find a way to do 100% CLTV, with an 80% first, and a 20% second, any buyer of that second would pay pennies on the dollar, even at 3 months seasoning.
Note buyers are investors, and as paper investors, they want to see you are in the deal enough, so that if half your tenants start a brawl outside one night, and trash your property, you are not going to just walk away because it was more hassle than you thought it would be to manage a large building like this.
Also, your $10k discount is WAY too small for this kind of junior lien position on a high risk proeprty such as a larger commercial multi family like this one.
Your seller has to have motivation to sell owner paper at a discount. If they are not motivated, there is nothing you can do to make them motivated, they either are, or they aren't.
Do you have a bank loan in place for the first position already? How much down do they want to see you put down, and how much down are you putting down?
Hope this helps, Dave
Dave,
thanks for your comments. I'm looking at an 80% commercial mortgage for the 1st position. They are wanting 20% down, or 10% down with the seller carrying 10%.
Basically, I'm trying to find creative ways of doing 100% financing.
Any ideas?
Glyn
That can only happen with a motivated seller, which it does not sound like they are.
Good luck to you, Dave
Glyn,
I agree with Dave that the seller is not the motivated type you need for 100% financing.
You could use other assets so that for the new loan application the loan will be 80% LTV with 20% equity above it. You might be borrowing the other funds and have to be clear about that. The key to the lender is they have something above them and can therefore foreclose, sell at a discount and still come out OK.
John
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