Two speakers break down a seller-financed real estate deal where the buyer locked in a $12 million purchase price but believes the property is worth only $4.5 to $7 million. The seller demanded 1.5% interest instead of the agreed 0.5%, and the promissory note forces prepayment if the buyer refinances or sells, trapping them in the deal.
Are you in the deal room?
Documents are option A, but we're going with option B, so it locks you into option A terms, which is not what we're going with.
Right there, so seller's asking for 1.5%, but we, we agreed to 0.5%.
These sneaky buttheads, they will, they'll sneak these sh— give me the sash jar.
Periodic blue payments, blue net maturity, right? That's in promissory note form there, right? This is aggressive leverage on you. No flexibility. I just have no cash flow-based structure. Mandatory prepayment upon transfer or refinance. So if we transfer or refinance the property, then we have to pay, right? It's a due-on-sale clause almost.
And we don't want that.
So our— well, it says right here, it says promissory note form 1 says interest rate is at 0.5%. So in promissory note 1, it says that our information had it that the seller originally wanted 1.5%. Remember?
Yeah.
Okay. So it's just saying what doesn't work for the seller, what doesn't work for the— so it's showing— so it's a strong legal framework, strong DD flexibility, due diligence, 9 months to close, earnest money protection early, entitlement control equals excellent, locks in full $12 million structure. This contradicts your negotiation stance. You are now saying deal may be worth $4.5 to $7. You want potentially this structure. So we're good right there because we got to point it out to them that it's only worth $4.5 about it. So, and then they want cash at closing, $3.4 million, because we're putting $600,000 down. Seller control over financing, no additional liens without seller approval. So right there, that one, that one's probably going to be taken out because we will definitely need to get a construction loan and, and raise capital here. And so we're asking for them to be in a second position lien, and we will be taking on first position debt. Why is it important for us to be in the first position lien?
Can you explain what you just— like, why that's mortgage and all of that, right?
So any work that we do to the property, because he's seller financing it, he gets all of that, all of that upside work that we do. If I fail and/or what they call, uh, I don't perform. So in that, he's, he's second position, so he would have to absorb that first position lien. If we got a construction loan, he's gonna have to absorb that loan as he is a second position right? And so in second position, lean position, those people don't have as much leverage as first position. Construction loans will not sit second. Construction loans will only go first. So it says right here, number 4, they want to give construction loan subordination, meaning that they'll approve a subordinate second position loan. Nope, that's not how it's going to work.
