Mastering the Morby Method in Finance

Oct 21, 2024

Creative Finance Masterclass: Video 12

Introduction

  • Video 12 in the series focusing on Creative Finance.
  • Hosted by Pace, who is an expert in creative finance strategies.
  • The focus is on real-world application and implementation of these strategies in the current market, particularly for real estate investing.

The Morby Method

  • Type: Acquisition Strategy, not a disposition strategy.
  • Problem Addressed: High down payments requested by sellers in seller finance deals.
  • Solution: Use of Non-QM or DSCR loans to cover a significant portion of the down payment.

Steps in the Morby Method

  1. Seller Agreement: Seller agrees to sell on seller finance but requires a large down payment.
  2. DSCR Loan:
    • Obtain a non-qualifying mortgage or DSCR loan, which focuses on the property income, not the buyer's credit.
    • Typically covers 50% of the purchase price.
  3. Seller Carry:
    • Seller carries the remaining amount as a seller carry note.
    • Often structured with no payments for several years (3-7 years).
  4. Additional Financing:
    • If DSCR lender allows, a portion of the loan might be kicked back for renovations or other uses.

Advantages of the Morby Method

  • No need for personal credit or cash.
  • Allows for creative terms on the remaining equity.
  • DSCR loans are asset-based, making them easier to secure.

Structuring Second Lien Position

  • Possible to work around lenders' restrictions on second lien positions by:
    • Making the seller a silent partner in the LLC.
    • Using a UCC1 filing against the LLC.

Practical Applications

  • Suitable for commercial properties and single-family homes.
  • Examples include successfully purchasing a 16-plex using the method.

Historical Context

  • Creative finance, similar to the Morby Method, has historical precedence in business, notably DuPont's use of seller finance to thrive.

Conclusion

  • The Morby Method allows for creative financing solutions where traditional methods fail due to high down payment requirements.
  • Encourages maximization of leads and creative problem solving in real estate.

Additional Resources

  • Visit joinpropwire.com for more tools to build lists and find motivated sellers.
  • Check out Pace's mentorship program at paceandjerry.com for comprehensive learning in creative finance.
  • Next Video: Discussion on LLCs and their role in creative finance in commercial real estate.
  • Note: Considerations for video 13 content, whether to skip due to superstition.

Full transcript