Seller Carry Can Make Bad Deals Look Good — Temporarily

Seller financing is one of the most powerful tools in creative real estate.

It can:

• Reduce cash required at closing

• Improve early cash flow

• Create optionality when bank debt is tight

But it has a dark side that doesn’t get talked about enough.

Seller carry can make bad deals look good — temporarily.

And if you don’t underwrite past the deferral period, it can quietly set you up for a forced refinance, equity loss, or capital call down the road.

Let’s break this down using a real deal.

The Illusion of “It Works”

A deal that only works because payments are deferred hasn’t actually been fixed.

It’s been paused.

Deferred seller payments:

• Improve DSCR today

• Increase cash flow today

• Reduce friction at closing

But they also:

• Mask true debt capacity

• Push risk into the future

• Create balloon exposure

Deferral is not forgiveness.

And lenders don’t care that a deal “worked for the first few years.”

Case Study: FM 1102 Retail Portfolio (Texas)

This was a two-building retail portfolio in New Braunfels, TX.

On paper, it looked like a clean Morby-style structure.

Key Terms (Simplified)

• Purchase Price: $2.2M

• DSCR Loan: ~$1.54M @ ~7.5%

• Seller Carry: $1.32M

• Seller Payments: $0/month for 5 years

• Balloon: Year 5

• NOI: ~$139K annually

The Result (Years 1–5)

• DSCR ≈ 1.08x

• Cash flow ≈ +$855/month

• Deal technically “worked”

• Buyer was paid at closing via structure

Most people would stop here and say:

“See? Creative finance works.”

But this is exactly where inexperienced investors get trapped.

What the Seller Carry Was Really Doing

The seller carry wasn’t solving the deal.

It was subsidizing it.

The only reason the property cash flowed was because:

• The seller wasn’t being paid

• The true debt load was artificially suppressed

Once seller payments begin, the math changes instantly.

What Happens After the Balloon?

If the seller note begins amortizing or even interest-only:

• Monthly seller payment ≈ $4,500–$5,000

• Net cash flow flips deeply negative

• DSCR collapses

• Refinance becomes mandatory, not optional

This is not a long-term hold.

It’s a time-boxed structure that demands a clean exit.

The Real Risk Wasn’t Interest Rate — It Was Time

The seller note wasn’t dangerous because of rate.

It was dangerous because of:

• Balloon timing

• Refinance dependency

• Tight DSCR margin

• No room for vacancy or repairs

If:

• One tenant leaves

• Insurance jumps

• Repairs spike

The deal loses oxygen fast.

This is how “safe” deals quietly become distressed.

The Rule Most Investors Miss

Here’s the rule I underwrite by:

If the deal only works while payments are deferred, the deal does not work.

Deferred payments are acceptable only if:

• NOI growth is highly probable

• Refinance math already works on paper

• You have multiple exit paths

Otherwise, you’ve simply postponed the reckoning.

How to Underwrite Seller Carry Correctly

When seller financing is involved, I always model three scenarios:

1. While Payments Are Deferred

Does it survive small shocks?

2. When Payments Turn On

Does it still cash flow?

3. If Refinance Fails

Can I sell, restructure, or extend without losing equity?

If scenario #3 is catastrophic, the deal is fragile — no matter how good it looks today.

Seller Carry Is a Tool — Not a Crutch

Seller financing is not bad.

But unexamined seller financing is dangerous.

Used correctly, it:

• Creates optionality

• Buys time for execution

• Enhances returns

Used incorrectly, it:

• Hides weak fundamentals

• Encourages overpaying

• Forces future distress

The difference isn’t creativity.

It’s discipline.

Final Thought

Seller carry didn’t save this deal.

It revealed the clock.

And every creative deal has one — whether you choose to see it or not.

If you can’t answer:

• What happens when the seller wants to be paid?

You don’t have a strategy.

You have a countdown.