In my part of the country (Wisconsin), this technique is almost unheard of, but it works. Here is what I did.
There was a mixed-use income property with good cash flow our company had listed. I convinced the seller to take a second mortgage of approximately 20% of my purchase price at a rate of 6.5% for a term of five years. I mortgaged the other 80% with the usual not-so-attractive commercial interest rate.
In my offer I asked for credits at closing to cover certain costs and other improvements. I was working numbers so that I was actually financing the property for 110% of what I really bought it for.
The bank doesn’t care how much I receive in credits as long as their loan is for 80% of the purchase price and the appraisal comes back at least for the amount of the purchase price. My accountant says that the higher purchase price may help hide my capital gains by making my basis higher. (I told him to check further into that.)
By the end of the fifth year of the seller’s second, I will have 20% equity in the building and experiencing amazing cash flow, not to mention the check I received at closing.
Works Every Time!