Seller financing vs hard money DSCR investors compares three capital sources: seller as bank, private lender for speed/rehab, and DSCR for permanent hold. Most portfolios use more than one over a career — the mistake is using the wrong tool for the exit.
Jaken Finance Group does not hold seller paper. We compare carry to hard money and DSCR on qualified non-owner-occupied files — 8.99%–13.5% IO and 5.75%–10.5%. Hub: commercial real estate financing · Apply: commercial loan request · (833) 264-7776
Comparison matrix
| Factor | Seller financing | Hard money | DSCR |
|---|---|---|---|
| Speed | Negotiation dependent | 7–14 days | ~14 days stabilized |
| Typical rate | Negotiated | 8.99%–13.5% | 5.75%–10.5% |
| Rehab draws | Rare | Yes | No |
| Qualification | Seller appetite | ARV / exit | Rent / NOI |
| Best for | Flexible seller, slow deal | Auction, rehab | Stabilized hold |
Seller financing pros and cons
Pros: Lower rate possible, flexible down payment, less bank bureaucracy
Cons: Seller must agree, often short balloon, due-on-sale risk if underlying mortgage exists, no draw facility for rehab
Always verify existing mortgage — subject-to options are different legal risk.
Hard money → DSCR sequence
- Hard money acquisition + rehab 8.99%–13.5%
- Stabilize rents
- DSCR refi 5.75%–10.5% retires hard money
Classic BRRRR without seller cooperation.
Worked example — seller wanted 30% down carry
Seller asks $50,000 down, carries $200,000 at 6% for 3 years.
Investor compares:
- Hard money $250,000 at 11% IO + 2 points — close in 10 days, win deal against cash competitor
- Seller carry wins if seller accepts 10% down and investor saves $18,000 in points
Run both IRR models with exit at year 3.
Need speed? Commercial loan request · (833) 264-7776
Installment sale tax is not a loan product
IRS Topic 705 covers installment-sale reporting when you carry paper. That is a tax topic. Jaken Finance Group originates hard money and DSCR, not seller notes. CFPB mortgage resources describe consumer closed-end rules that do not govern a business-purpose private note — but seller-finance still has state licensing and due-on-sale risk.
Use seller paper when the seller will actually wait and the price is right. Use hard money at 8.99%–13.5% IO when you need certainty of close. Use DSCR at 5.75%–10.5% when the asset already leases. Compare, then pick one. (833) 264-7776.
Installment sales are a tax topic — Jaken Finance Group is not the seller’s bank
The IRS [installment sales](�URL0� topic (Tax Topic 705) covers sellers who receive at least one payment after the year of sale. That is how many seller-carry deals are taxed. It is not a Jaken Finance Group product. Jaken Finance Group does not originate seller-finance notes. This page compares structures so you can pick institutional hard money or DSCR when the seller will not — or should not — hold paper.
If the seller wants monthly income, they can carry a note with counsel. If they want cash at the table, you need a lender.
CFPB mortgage rules vs kitchen-table paper
The CFPB publishes mortgage compliance resources aimed at companies in the mortgage market. A private seller note can still create a recorded lien, a balloon, and a due-on-sale problem if an underlying bank loan remains. Amateur promissory notes become title objections when you later refinance to DSCR at 5.75%–10.5%.
Have an attorney draft the note and mortgage. Then ask whether a 10-day hard money close at 8.99%–13.5% IO is cheaper than losing the contract.
When seller carry still loses
Seller carry loses when the seller needs a full payoff, when rehab needs draws, or when the balloon lands before you can refinance. It also loses when the existing mortgage has a due-on-sale clause — that is a subject-to problem, not seller financing.
Jaken Finance Group’s path is acquisition bridge or hard money, then DSCR hold. Call (833) 264-7776 with the seller’s cash-out number and your exit month.
Hard-money prepaid interest can apply before you refinance. Confirm minimum interest on the term sheet. A seller second behind an institutional first is more common than a DSCR first behind a seller first. If you later buy the seller’s note instead of the house, that is a different file — see finance a mortgage note purchase.
Worked file — seller wanted 20% down and a five-year balloon
The price was fair. The balloon sat inside a refinance market the buyer could not control. Buyer used hard money at 90% LTC, 10.99% IO, 12 months, sold after rehab, and never took the seller note. Another buyer on a stabilized duplex next door used seller paper at 6% because they could hold the balloon. Same street, two products. Jaken Finance Group originates the first path. Compare on subject-to vs seller financing vs hard money.
Closing times are in business days.
Those clocks commence upon receipt of appraisal payment and satisfaction of borrower conditions.
All loans are subject to full underwriting for loan approvals.
Jaken Finance Group only finances non-owner occupied investment properties.
Balloons and leftover bank loans
Seller carry with a 3-year balloon is a clock. If you cannot refinance to DSCR or sell by then, you are negotiating with the seller again — from weakness. Write the balloon on the same page as your exit month.
If the seller still has a bank mortgage, a new seller note does not erase due-on-sale on the old loan. That is subject-to risk wearing a seller-finance hat. Verify the existing unpaid balance before you celebrate a “6% carry.”
Paper that a later DSCR desk will refinance
A later DSCR refinance must pay off or subordinate cleanly. The seller note needs a recorded mortgage or deed of trust, a legal description that matches title, and a payoff letter habit. Handshake IOUs become exceptions that kill 14-day closes.
Jaken Finance Group will not hold the seller’s note. Jaken Finance Group will pay it off with hard money or DSCR when the file qualifies. Rates: hard money and bridge 8.99%–13.5% IO, DSCR 5.75%–10.5%.
Memphis SFR — seller wanted 20% down (composite)
List $250,000. Seller offers $50,000 down and a $200,000 carry at 6% for 36 months, no draws.
Investor needs $28,000 of rehab. Seller will not fund draws.
- Path A: accept carry, fund rehab in cash, balloon risk at month 36
- Path B: hard money $225,000 at 11% IO plus 2 points, 10-day close, draws for rehab, DSCR refi month 10
Path B won because the rehab could not wait and a cash competitor was circling. Points cost $4,500. Losing the contract would have cost the spread on a $1,850 rent.
Seller second behind an institutional first
Some sellers take a second behind a new DSCR or hard-money first. That can work when combined LTV and combined DSCR clear the desk. It fails when the seller wants to stay in first position and the institutional lender will not take second.
Do not invent a structure on a napkin at the kitchen table. Ask both lien holders in writing.
IRR, not folklore
Run a 3-year hold both ways: seller coupon versus hard-money coupon plus points plus DSCR takeout. Include vacancy during rehab. Include the balloon.
If the seller will not carry, stop negotiating folklore. Submit commercial loan request. Call (833) 264-7776 with the cash-out the seller actually needs.
Related: finance a note purchase if you are buying existing paper instead of the house. Residential note buyers guide if you are the one selling a note.
Attorney review is cheaper than a title objection. Pay the attorney. Then pick the institutional path when speed or draws matter.
Due diligence on the seller as if they were a bank
Ask for the existing payoff, the note, and whether anyone else is on title. Ask whether they will accept an institutional first. Ask whether they understand an installment sale under IRS Topic 705. If they cannot answer, they are not ready to hold paper — and you should not rely on them.
Credit the seller mentally. If they need the cash for a nursing-home bill, they will not stay patient through a late payment. That is a balloon risk even if the note says 7 years.
Recording, usury, and servicing
Unrecorded seller notes lose to later recorded liens. Record. Usury and licensing rules vary by state. Counsel, not a Facebook group, answers that. Servicing — who sends the coupon, who escrows tax — should be named. You do not want the seller’s cousin texting you for payment.
Jaken Finance Group will not service that note. Jaken Finance Group will pay it off with DSCR or hard money when you refinance.
When “seller finance plus DSCR” is a fantasy
Most DSCR firsts will not sit behind a seller first. Most DSCR firsts will not allow a messy unrecorded seller second without review. Ask before you write the contract. A kitchen-table stack that cannot be refinanced is how you own a balloon.
Auction and 10-day sellers
Sellers who need cash this Friday are not carry candidates. They are bridge or hard-money candidates at 8.99%–13.5% IO. Close, rehab, refinance to DSCR at 5.75%–10.5%.
Call (833) 264-7776 with the seller’s cash number, any existing unpaid balance, and whether you need draws. Apply at commercial loan request.
Related: subject-to options if the “carry” is really leaving the old bank in place, note purchase if you are buying paper, and CFPB mortgage resources if you want the regulatory vocabulary for institutional loans.
Jaken Finance Group does not originate seller-finance notes. This page exists so you can leave a weak carry on the table and still close. Bring counsel. Then bring a term sheet.
Seller remorse and the unrecorded “deal”
Some sellers agree to carry at dinner and recant when their child wants a cash closing. Get the carry terms in the contract, not in a text. If they recant, you need a backup hard money path already quoted. That is why this page exists.
If they insist on staying in first position, most institutional DSCR desks will walk. Ask early.
Call (833) 264-7776 with the contract language that describes the carry — or the language that says they want cash. Apply at commercial loan request the same day the seller flips.
Jaken Finance Group will not draft their promissory note. Counsel will. Jaken Finance Group will pay that note off later with DSCR at 5.75%–10.5% or with bridge at 8.99%–13.5% IO when the file qualifies.
A carry that cannot be refinanced is a trap with a friendly face. Run the year-3 balloon in the same spreadsheet as the year-1 payment. If only year 1 looks pretty, you do not have a structure. You have a delay.
If the seller will not record the lien, treat the carry as unsecured folklore and quote hard money as the real close. Unrecorded paper will not survive a later title commitment. Call (833) 264-7776 the day the seller refuses to record.
A recorded seller second behind a new institutional first is a conversation. An unrecorded “we trust each other” first is not. Get the recording receipt or get a lender.
Rates, terms and conditions offered only to qualified borrowers and are subject to change at any time without notice.
Closing times are in business days.
Those clocks commence upon receipt of appraisal payment and satisfaction of borrower conditions.
All loans are subject to full underwriting for loan approvals.
Jaken Finance Group only finances non-owner occupied investment properties.