Financing: 80% lender, 20% seller

Say for example, I have found a property I wish to acquire, however, I do not have enough cash for a down payment. If it possible to structure financing in such a way for commercial properties…

-Traditional lender (bank) to finance 80%
-Seller to carry 20%

Note: assume the property at the price of purchase, generates positive cash flow and at least a 1.25 DCR

Is this type of financing possible with commercial properties?

No, I think the most I have ever seen for apartment bldgs is 95% CLTV. Lenders want to see that you are sharing the risk. I was quoted recently for an 85% first and a max of 7.5% seller second. So that is 92.5% CLTV. Just remember, you will pay for a highly leveraged loan. Interest rates will be higher, loan product won’t be as good, terms won’t be as good etc.

Also, it’s not always a good idea to leverage your properties that much, specially in today’s market. You are basically wanting 100% financing? If you find something close to this be very careful you don’t end up upside down. Ofcourse there are always exceptions to the rules. Typically people who qualify for 100% financing on apartment bldgs are those who already own a significant amount of property. My partner actually obtained a couple 100% financed loans a few years ago on properties that needed repositioning. He needed to cross collatorize his other properties to get the loan. Very risky, but it paid off huge for him.

The reason why I’m inquiring aboutthis type of financing is becuase I’ve been coming across a few properties in my area with motivated sellers that even at rather high proposed interest rates the properties would still generate positive cash flow because of the deep discounts offered by the sellers to get out of the business.


If the deal is not good enough to support 100% financing, then the deal is not good enough.

That’s just the thing, it is good enough to support 100% financing which is why I am asking. I always here that in the commercial world the financing is judged upon the property, so if the property can support 100% financing why wouldn’t someone be able to obtain that property especially if you add a personal guarantee and even a guarantor?

Maybe what I’m reading is written statements from people that like to bullsh*t…

You will be very hard pressed to find a commercial lender willing to lend you 100% on a commercial apartment. They want you to put some money down. HML are the exception to the rule. But they will require that the purchase + repairs is no more than around 65% of the ARV appraised value. Each is a little different


600,000 purchase
50,000 rehab

650,000 total borrowed

ARV (after repair value) has to equal $1,000,000 or greater. Or you will not get the loan for 100% financing.

There are specific owner occupied transaction scenarios that avail itself to 100% financing, but experience/background/networth will be predicating factors.

As an investor, the best one could achieve in the most optimal circumstances is 95 CLTV using a 75% lender 1st + 20% lender 2nd.

As Iron Range noted, HM is the exception—you will need to purchase approx. 70% below market value to get to 100%.


Scott Miller

How would this scenario work:

Lender (bank) 80%
Private money 15%-20%

Question: would you have to disclose to the bank that the 15%-20% was not your own cash and in fact from a private investor or are you entitled to disclose where the 15-20% is coming from?

It typically wouldn’t because 99.9999% of the time the Private Lender will not want to take the second position.

If you can get the other 15-20% somewhere else, then it’s very possible depending on what you are giving in return.

To add to EZLoanz comment. Just know that EZLoanz’s 70% is the appraised value, not what you hope or wish it will appraise at.

OK, how about this method scenario…

I have a family member that is willing to use equity from one of their rental properties (they own it 100% free and clear) to help with the down payment and also co-sign (hypothetically speaking). Would the bank or a traditional lender approve of this scenario?

DC Group, from what I’ve seen, private money from a family member or a private lender willing to hold a second position will enable you to get into a property with 100% financing. You’d probobly have to have some sort of formalized partnership agreement with the private partner to show the bank. I have made several relationships with individuals wanting to get into commercial real estate, have cash, but don’t have the experience nor time to do it. I offer them a 50% equity position on a deal I find (50% of equity and cashflow) where they would pay the down payment. This way, they own a share in the investment, and allows me to get into a deal 100% no money down. Yes, I have to split profits, but 50% of a pie that didn’t cost me anything to bake is a pretty hefty slice. Especially on larger deals.

For high ltv bank lending, 90% loans also available. But again, the interest rate is pretty high. You pay for the leverage. If you are going to find a highly leveraged loan, be sure to try to find one that doesn’t have a pre-pay penalty. The interest rate may be a little higher, but if your exit strategy is to refinance w/cash out within a year or so to pay off your private lender, a no-pre-pay short-term loan is the way to go.

Funny!!! Everyone (myself included) gets very fustrated when they first get into commercial. The deals SUCK, financing sucks, etc…

HML are a good option, especially for a first time commercial apartment buyer.
They will:
-Will force you to buy only great deals (saves you from distroying yourself)
-Will do 100%
-Will give you money for repairs/updates
-Will pay the closing costs
-Some will even roll in 3-6 months of the first mortgage.

If all investors who are new to commercial STARTED by buying with a HML, there would probably be less failed investors out there. All you have to with this deal is bid a little lower, then you can get your 100% financing through a HML.

The only reason I am hesitant using a HML is because of the huge points upfront and the very high interest rates.

Would HML consider your personal credit in order to lower the rate?

Could you also, give me an example of real world numbers for a property that has the following financial history…

Appraised value: $1,000,000
Purchase price: $600,000
Rehab: $50,000

Let’s say at the point of purchase the property has a DCR of 1.25

Also, the buyer has a fico score of approx. 720 and has a guarantor willing to co-sign.

What kind of rate and points would someone be looking at (use your experience to estimate) judging by the info given above?

A high credit score will help you, but 65-70% of ARV is the max. The interest rate will be around 10-14%. The interest rate is not too important because you are going to refinance within a 3-6 months. The problem is they want 6% in closing costs, then you have to refinance and pay closing costs again. But that is the price you pay for having them take on all the risk.

When you refinance are you refinancing with a traditional lender or the same/another HML?

12-18% is probably a better range for interest rates. I usually get quoted around 14%.

You can use the same person to refinance you out of the HML if they have the ability to do it. Some can and some can’t. You just ask them if they can refinance you out. They will say yes or no. Either way your fine.

Example using numbers:

ARV of 1,000,000
Purchase $500,000
Repairs $100,000
Closing cost 6%

So in the end you owe about $650,000. Then 3-6 months later you refy for an 70% loan, with some cash back. You can even do an 80% loan and get about $100,000 back at closing. Anything higher than an 80% is not smart, UNLESS all of the money is to be put down on another property.

Are you using a broker for the hard money and refinance?

Are there any difficulties I may come across when trying to refinance the property into a desirable loan only after 3-6 months?

Also, does refinancing so soon affect the interest rate of the refinance?

PS. just want to say thanks to all the members of this board providing great and honest information. Without this board I’d be so far behind in this learning process. I am truely greatful!

Well this all really makes sense. But if in general it does reqiure a sigificate amounts of cash to even get into even a small apartment building what does one do with limited funds? Should we possibly stay under the 6 unit range and qualify for different financing?

The purpose of 100% isn’t only for those with no money. It is also used by those with money who simply don’t want to use it.

Let’s say I want to buy a 500,000 property. 10% is $50K. I might have $50k but don’t want to risk over extending myself by putting $50k down and only having $.02 in my bank.

You are definitely correct. It would be a HUGE risk and gamble to buy a Mid-Large apartment with no money (or experience) to your name. An investor with no money will probably fail if they buy mid-large commercial apartments.