When most investors think about financing, their mind usually jumps straight to the bank: apply for a mortgage, put in a decent down payment, maybe top it up with private money or a JV partner. That approach works — until it doesn’t.
Sometimes the bank won’t give you what you need. Sometimes the deal is too unconventional, or the numbers don’t line up the way lenders want. And other times, you just want to get creative and stretch your capital further. That’s where a vendor Take-back mortgage — or VTB — can change the game.
What Is a Vendor Take-Back?
A VTB is when the seller of a property agrees to finance a portion of the deal instead of taking all the proceeds upfront. In simple terms, the seller becomes the lender.
Usually, it’s structured as a second mortgage, sitting behind the bank’s first mortgage. But if the seller owns the property free and clear, it can even be the primary or only loan on the deal.
Picture this:
The purchase price is $500,000
The bank offers 60% — that’s $300,000
The seller agrees to hold 20% as a VTB — $100,000
The buyer brings in the remaining $100,000 in cash
Now the buyer still only puts in 20%, but instead of needing 80% from the bank, the financing is split. That split — especially when the bank won’t go as high as you need — can be what gets the deal over the finish line.
Why Would a Seller Agree to That?
It might seem strange at first. Why would a seller choose not to walk away with all their money?
But think about the seller’s position. They might not need or want the entire sale amount at once. In fact, there are situations where holding back some of the proceeds actually works better for them.
A vendor Take-back gives them steady, predictable income without having to manage the property anymore. For retired landlords or sellers exiting the market, this can feel like a more comfortable transition. Instead of cashing out and sticking the money into a low return investment account, they’re earning 6–8% interest, backed by a property they already understand.
Then there’s the tax angle. Taking the full amount upfront could trigger a hefty capital gains bill. But by structuring the deal as partial financing, they can potentially spread that gain — and their tax burden — over a few years. It’s a benefit many sellers haven’t even considered until someone brings it up.
In some cases, sellers are even open to a VTB in exchange for a better sale price, a faster closing, or more flexibility around conditions. If the terms are clear and the payments are secured, they’re often more open than you’d expect.
Why Investors Should Use VTBs More Often
For buyers, the benefits are just as clear.
Maybe you’ve got great cash flow but don’t want to overextend on one deal. Maybe the bank won’t fund as much as you’d hoped, or you’re dealing with a property that needs work and scares off lenders. A vendor Take-back gives you flexibility and a little breathing room — often just enough to make the numbers pencil out.
And it’s not just about getting the deal done. With a VTB, you can negotiate terms that better match your investment strategy. If you’re planning to renovate or reposition the property, it’s a huge bonus to have deferred or interest only payments during the first few months.
Plus, less upfront capital means more dry powder for future deals. In a competitive market — or when you’re scaling — that flexibility goes a long way.
When VTBs Make the Most Sense
This isn’t a tool you’ll use on every transaction. But there are a few situations where a VTB fits perfectly.
If the seller owns the property outright — or has minimal financing on it — they’re in the best position to offer one. These sellers have flexibility and aren’t relying on every last dollar from the sale. Retirees, longtime landlords, or estate sales are prime candidates.
VTBs also shine when a property is tough to finance. That could mean the income doesn’t support a large mortgage, the asset needs work, or the structure is outside the norm (think mixed-use, short-term rental, or legal nonconforming units). A VTB helps bridge the gap between what the bank will offer and what you actually need.
And in slower markets? VTBs can help sellers stand out, giving them an edge when buyers are more selective — and giving you more room to structure a deal that works for everyone.
What Kind of Interest Rate Makes Sense?
Here’s the good news: the interest rate on a VTB is totally negotiable. But you want it to be reasonable — something that feels fair for both parties.
Most VTBs fall somewhere in the 5% to 10% range.
For shorter term loans (1–2 years) on lower risk properties, you might land around 5–6%.
For longer term or higher risk situations — or if you’re asking for deferred or interest only payments — 7–9% is more common.
In rare cases, especially with extended deferral or balloon terms, rates might climb above 10%.
Remember: the seller is essentially becoming a private lender. Position the rate as a secure return on their capital. They’re not handing over cash to a stranger — they’re financing a property they know, backed by a mortgage on title. In a world of 2% GICs, that’s a pretty strong offer.
A Few Important Notes Before You Use One
Before you start suggesting VTBs left and right, there are some key things to understand — for your sake and the seller’s.
Clear it with your primary lender.
Not all banks are okay with second position financing. Some allow it with disclosure; others flat out don’t. Don’t make assumptions — get it in writing.
Work with a real estate lawyer.
This isn’t a handshake deal. You need proper documents, a registered mortgage or promissory note, and a clear agreement around interest, terms, and repayment. Don’t cut corners here.
Know your exit plan.
Most VTBs are shortterm — one to three years. That means you need a clear strategy to pay it out, whether it’s refinancing, a JV buyout, or a sale.
Make sure the seller understands what they’re agreeing to.
Walk them through the basics — how it works, when they’ll be paid, what their security is. If they feel unclear or rushed, they’ll back out — or worse, cause problems later.
Structure the deal to work for both sides.
Get creative, but stay realistic. If the seller wants quarterly payments or a specific term length, figure out if that fits your plan. If not, don’t force it. Collaboration here goes a long way.
Disclose everything to everyone.
If there’s a broker, lender, or partner involved, don’t surprise them. Get it all on paper, and make sure everyone knows what role the VTB plays in the bigger picture.
How to Bring It Up (Without Making It Weird)
Pitching a VTB isn’t about asking for help. It’s about offering a different way to do business — one that could actually benefit the seller as much as it does you.
Instead of saying, “Would you carry financing?” try something like:
“If you’re open to it, I’d like to explore a structure where part of the purchase price stays in the deal for a short term. You’d earn monthly income at a fixed rate, it would be secured against the property, and it could help reduce the tax impact in year one. Want me to walk you through what that could look like?”
Keep it simple. Keep it professional. And lead with value. The right sellers will at least be open to the idea — and you’d be surprised how many say yes when they understand the benefits.
Final Thoughts
Vendor Take-backs aren’t just some outdated financing trick. They’re a flexible, relationship driven way to get deals done in today’s market — especially when traditional lenders fall short or creativity is needed to make the numbers work.
They benefit both sides. They help buyers close more deals and conserve capital. They help sellers exit properties while still earning solid returns. And when structured right, they can take a deal that’s “almost there” and turn it into a done deal.
If you haven’t used a VTB yet, don’t overlook it. It’s one of those tools that becomes invaluable once you’ve used it — and you’ll wonder why more investors aren’t doing the same.
