Is it possible to achieve "100% financing" with a seller 2nd? (assuming the lender's appraisal agrees on the value figure, and assuming that the lender side is 70%LTV, seller 2nd is 30%LTV, and (boy this is a lot of assumptions) assuming that it still clears a 1.25X dscr when both loans are taken into account)

I understand that a lender would be wary of a buyer who hasnt put anything on the line, but is there a situation/scenario where the lender would even listen to an idea like this?

I saw some loan programs that have a 95%CLTV, with a seller 2nd, but no 100's.

Is this getting into the realm of hard money? Or dont those folks look kindly on any 2nd at all?

Thanks in advance!

" Is it possible to achieve "100% financing" with a seller 2nd?" Yes

" a lender would be wary of a buyer who hasnt put anything on the line…" Yes they would be.

" where the lender would even listen to an idea like this?…" Only seen it once in about nine years of banking. We were getting not only a second, but the guarantee of the seller {very strong businessman to whom we wanted to lend more money}. Never seen it since, I will very much doubt that I will see it in another nine years. You need to convince the seller and the banker to go outside the box. The first question that comes to mind is why? …. Why does the seller needs to do this?

" Is this getting into the realm of hard money? Or dont those folks look kindly on any 2nd at all?…" A lender that is only looking at collateral does not see the 2nd as a problem… unless they want to pocket the difference. I know that bank lenders can not pocket the difference on the sales price, but I can think of a couple of ways that an unscrupulous lender could.

Yep! a 90%-95% CLTV is allowed with our programs but ofcourse the building must carry the debt. Just curious, how are you coming up with a 95% or even a 100% CLTV with a 1.25 debt service? either the terms of the seller second are very forgiving or the property is truly undervalued.

Thanks for the responses. Surely 5% equity (plus closing / financing costs) should not be too difficult to come up with, esp if it shows 1.25x, right? That .25 would make for a nice return on the equity.

How could I come up with a 1.25x with 100% CLTV? If the cap is high enough, and the terms of the loan are average for a normal loan of that type of commercial property (i.e., not hard money) then it can happen, right? Say, 10% cap, 6.5%, 30yr loan 1st, same for the 2nd, then you would probably come up close to a 1.25x, correct? (take any set of actual #s and crank it through)

As to the motivation of the seller, I dont know, you are right, why they would do it I have no idea. The only way is if the buyer had a great gift of persuasion!

Thank you again for the insight!

humm.....unless you have an operating statement, email me and i can send you a simple one page excel spreadsheet with various expenses etc that you can use to arrive at an annual NOI. Based on that combined w/a seller second you can figure out the debt service which as you probably know would be essentially the NOI divided by the mortgage payments you have to make annually (We will igonre the various averages that UW plugs in for now). Thanks.

A couple of comments.

The 2nd will require a higher rate if it were a third party. Much more risk.

Take a look at the spreadsheet located at http://www.loanuniverse.com/sensitivity.html and see what numbers you come up with.

The sensitivity spreadsheet is very helpful, I have used it in the past to help me get a handle on a prospective project. Yes, i used past income and expenses (or proforma/typical percentages if higher for expenses) to arrive at NOI. I know a 3rd party would charge higher amounts, more perceived risk, but its the seller doing the 2nd (and if they dont think the value is good, why should anyone else?) and thats why I put them on the same terms (for example's sake) as the 1st lien. After redoing some of the math and numbers, its coming out to be more like a 1.18x dscr, which isnt nearly as strong. ...although still outstanding considering its theoretically financed at 100%.

Thanks again for all your feedback. The impression I am taking from it is that it is doable, but I had better do all my homework and understand that it is quite an unusual thing, and one that is looked at with skepticism, so I should not get my hopes up. I have been in residential real estate for 6 years now, accumulating 10 single families and one multifamily, and was considering making a break for commercial. For fear of sounding like a late night infomercial, I declined to inquire at my bank about this idea, so I came to these boards (where at least I can be ridiculed annonymously ) hehe

I have a feeling I am not the only poster who feels this way and is grateful for the information we receive!

"...and is grateful for the information we receive! ...

Feel free to express your gratefulness with a donation to my March of Dimes campaign