The Morby Method: DSCR Loan + Seller Carry, Zero Down
Most rental deals die at the same wall: the down payment. A lender will happily finance 75–80% of an investment property, but the remaining 20–25% has to come from you — and on a $300,000 house, that is $60,000–$75,000 in cash before you own a single doorknob. The Morby Method is a way over that wall. Instead of bringing the down payment yourself, you have the seller finance it — as a second loan that sits quietly behind a normal bank loan.
The structure, popularized by the investor and educator Pace Morby, combines two lenders who never talk to each other: an institutional DSCR loan in first position (qualified on the property’s rent, not your income), and a seller-carried second for the gap that would normally be your down payment. Two loans, no personal down payment, and — when it’s structured right — a rental that cash-flows from day one.
This is a cousin of the hybrid subject-to: both use a seller-carried second to cover equity. The difference is what sits in first position. The hybrid takes over the seller’s existing mortgage subject-to; the Morby Method originates a brand-new DSCR loan. That one difference changes everything about who qualifies and how the risk stacks up.
- The Morby Method = DSCR loan (1st) + seller-carried note (2nd). A bank lends ~75–80% based on the property’s rental income; the seller carries the remaining ~20–25% as a second-position note — the piece that would otherwise be your down payment.
- The DSCR lender qualifies the property, not you — no tax returns, no personal income test — which is why it pairs so well with a seller second. See DSCR loans explained.
- The seller’s second is often 0% or low-interest with a long or no balloon, because the seller’s goal is the sale price and monthly income, not a high yield. They also spread their capital-gains tax over years via installment-sale treatment.
- The catch most gurus skip: many DSCR lenders cap combined loan-to-value or require some of your own money in the deal. A true 100%-financed Morby Method needs a lender that explicitly allows a seller-held second — not all do.
- The two big risks are a balloon on the seller second and negative leverage — stacking two payments so high the rent can’t cover them. Underwrite both before you fall in love with “zero down.”
The Problem: The Down Payment Is the Real Barrier
For most people trying to buy rentals, financing the property was never the hard part — banks lend on income-producing real estate all day. The hard part is the wall of cash the bank makes you put up first. On investment property, lenders typically want 20–25% down, and they want it to be your money, seasoned in your account, not borrowed.
That is the barrier that keeps new investors stuck at one or two properties: every deal drains another $60,000–$75,000 of cash they then have to rebuild before the next one. The Morby Method attacks that specific barrier — not the loan, the down payment — by finding someone who is already motivated to help you cover it: the seller.
The bank finances the house. The seller finances your down payment. You bring the closing costs and the management.
How the Morby Method Works
Two pieces of financing close at the same table:
First position — a DSCR loan. A Debt Service Coverage Ratio loan is an investor mortgage that qualifies on the property’s own numbers: does the rent cover the payment? The “DSCR” is simply rent (or net operating income) divided by the debt payment. If the property pays for itself, you qualify — no W-2s, no tax returns, no personal debt-to-income test. That is what makes DSCR the natural partner for creative structures: the lender is underwriting the house, so where your down payment comes from matters far less to them than it would to a conventional lender.
Second position — the seller carry. Instead of you wiring a 20–25% down payment, the seller agrees to carry that amount as a second loan against the property. You sign a promissory note to the seller, secured by a second lien, and pay them monthly — often at 0% or a low rate, sometimes with a balloon years out, sometimes fully amortizing. The seller sits behind the DSCR lender in line: if everything went wrong, the bank’s first lien gets paid before the seller sees a dollar.
The result: the DSCR lender funds ~75–80%, the seller “funds” the other ~20–25% by carrying it, and the two add up to the full purchase price. Your out-of-pocket collapses from a five-figure down payment to just closing costs and reserves.
Why the DSCR lender is comfortable being stacked. They are in first position with a real lien on a real, cash-flowing asset, at a conservative 75–80% of value. Even though the seller’s second brings the combined financing to ~100%, the lender’s own exposure is still only 75–80% — they get paid first in any foreclosure. That first-lien protection, plus the property’s income, is why a well-chosen DSCR lender can accept a seller-held second behind them. But “can” is lender-specific — see the limits below.
Worked Example: A $300,000 Rental, Nothing Down
Numbers make the structure concrete. This is illustrative; rates, rents, and lender rules vary.
| Line item | Amount |
|---|---|
| Purchase price | $300,000 |
| DSCR loan (first position), 75% LTV @ ~7.5%, 30-yr | $225,000 → ~$1,573/mo (P&I) |
| Seller-carried second, 25% @ 0%, amortized w/ 7-yr balloon | $75,000 → ~$208/mo |
| Total monthly debt service | ~$1,781/mo |
| Market rent | ~$2,400/mo |
| Cash to close (your money) | Closing costs + reserves only (~$8k–$12k) |
| Conventional comparison | $75,000 down + one payment |
You control a $300,000 asset without the $75,000 down payment — the seller carried it. The rent ($2,400) covers both payments ($1,781) with room left for taxes, insurance, and management, though margins are thin and must be underwritten honestly. Compare that to the conventional path: same house, but $75,000 of your cash locked into the deal before you collect a dollar of rent.
Notice the seller second is 0% here. Frame it to the seller as a monthly number and a payoff date, never as an interest rate. “You get $208 a month and the balance in seven years” is a concrete promise; “I want you to lend at 0%” sounds like a favor you’re asking. The seller’s real wins are the full price, the monthly income, and spreading their tax bill — not the yield.
The Catch the Gurus Gloss Over
Here is where honesty matters, because “buy rentals with zero of your own money” is exactly the kind of promise that gets oversold.
Not every DSCR lender allows a seller-held second. Many cap the combined loan-to-value (CLTV) — say, 80% total — which leaves no room for a 25% seller second. Others require the borrower to have some real money in the deal (“skin in the game”) specifically to avoid a 100%-financed borrower who can walk away at the first sign of trouble. A true nothing-down Morby Method requires a DSCR lender that explicitly permits a seller-carried second within their CLTV limits. Those lenders exist, but you have to ask the question up front — “Do you allow a seller-held second behind your first?” — before you structure the deal, not after.
Do not assume 100% financing is allowed — confirm it in writing. If you structure a deal around a seller second and your DSCR lender’s underwriting rejects the CLTV at the last minute, you either kill the deal or scramble for cash you told the seller you didn’t need. Get the lender’s seller-second policy confirmed before you sign anything with the seller.
Risks and How to Manage Them
Balloon on the seller second
If the seller’s second has a balloon — say, the full $75,000 due in 7 years — that is a hard deadline. You will need to refinance, sell, or have cash to pay it. Negotiate the longest balloon (or full amortization) you can, and start your refinance or sale plan a year before the date, not the month of.
Negative leverage — the rent must cover both payments
Stacking two loans means stacking two payments. If rents are soft or the DSCR first-position rate is high, the combined debt service can swallow the cash flow and leave you feeding the property every month. The whole point of DSCR is that the property pays for itself — so run the combined payment against realistic rent minus vacancy, taxes, insurance, management, and maintenance. If it doesn’t clear with margin, the “zero down” deal is a monthly liability, not an asset.
The seller is taking real risk in second position
If you default and the DSCR lender forecloses, the seller’s second can be wiped out entirely — they lose the equity they carried. A seller agreeing to this is extending real trust. Honor it: keep reserves, use a servicer so payments are documented, and don’t structure a deal whose margins you don’t actually believe in.
Seasoning and refinance limits
If your exit on the balloon is a refinance, know that lenders have seasoning rules and will only lend against a percentage of value. If the property hasn’t appreciated, a refinance may not pull enough to clear the second. Have a backup — appreciation is a hope, not a plan.
Morby Method vs. Hybrid vs. Subtail
These three creative structures rhyme, and mixing them up leads to bad deals. The dividing line is what’s in first position and what you’re trying to do.
| Structure | First position | Second position | Best when |
|---|---|---|---|
| Morby Method | New DSCR loan | Seller carry (your down payment) | Buying a rental to hold; seller has equity and will carry; a DSCR lender allows the second |
| Hybrid subject-to | Seller’s existing mortgage (subject-to) | Seller carry (their equity) | Seller has a valuable low-rate loan and equity above it |
| Subtail | Seller’s existing mortgage (subject-to) | — | Flipping: ride the cheap loan, renovate, resell |
The Morby Method is the one to reach for when you want to keep the property as a rental and the seller has equity they’ll carry — and when you can find a DSCR lender that plays along.
Frequently Asked Questions
What is the Morby Method?
It is a way to buy an investment property with little or no down payment by combining two loans: an institutional DSCR loan in first position (usually 75–80% of value, qualified on the property’s rent) and a seller-carried note in second position for the remaining 20–25% — the part that would normally be your down payment. The two loans together cover the full price, so your out-of-pocket is mostly closing costs and reserves.
How is it different from a hybrid subject-to deal?
Both use a seller-carried second. The difference is first position. A hybrid takes over the seller’s existing mortgage subject-to (no new loan, no bank). The Morby Method originates a new DSCR loan in first position. The hybrid needs a seller with a good existing loan; the Morby Method needs a DSCR lender willing to sit above a seller second.
Why would a seller agree to carry a second at 0%?
Because they get their full price (not a discounted cash offer), a monthly income stream, and installment-sale tax treatment that spreads their capital-gains tax over years instead of all at once. Framed around the monthly payment and payoff date rather than an interest rate, a 0% carry can still be the best offer a seller receives — especially one who doesn’t need a lump sum today.
Does every DSCR lender allow this?
No — and this is the most important thing to verify. Many DSCR lenders cap combined loan-to-value or require the borrower to contribute their own funds. You need a lender that explicitly permits a seller-held second behind their first, within their CLTV limits. Confirm the lender’s policy in writing before you structure the deal with the seller.
Is the Morby Method risky?
It has real risks: a balloon on the seller’s second creates a future deadline, and stacking two payments can wipe out cash flow if rents don’t cover both with margin. It is a legitimate structure, not a gimmick — but “zero down” magnifies the downside if the property underperforms. Underwrite the combined payment against conservative, real-world rent and expenses before you commit.
Can I use the Morby Method without a US SSN?
Often, yes. DSCR loans qualify on the property, and several DSCR lenders lend to foreign nationals through a US LLC — no US credit or SSN required for those programs. The seller second is a private contract. You’ll still need a US LLC, a US bank account, and a lender whose foreign-national DSCR program allows a seller-carried second.
The Morby Method is the “keep it as a rental” cousin of the creative-finance family: a new DSCR loan up front, the seller carrying your down payment behind it. If the seller has a low-rate loan worth keeping, compare it to the hybrid subject-to; if your plan is to renovate and resell rather than hold, look at subtail. For the whole low- and no-cash map, start at no money down or the creative finance overview.
This guide is educational and is not financial, tax, legal, or investment advice. Programs, lender policies, and tax rules change. Consult a licensed attorney, CPA, and lender before acting.