A 70/20/10 structure means you create two notes instead of one. You set up a 1st lien at about 70% of the property value and a 2nd lien for the remaining 20%, with the buyer putting 10% down.
Most note buyers want to buy a 1st lien at about 65–70% of property value. If you write one large note near the full sales price, the buyer needs a deep discount to hit that ITV on the whole balance.
By splitting into a 70% 1st and a 20% 2nd:
- You sell the 70% 1st lien closer to par, with a smaller discount.
- You keep the 20% 2nd lien for extra cashflow and long-term profit + Possible Infinity Return!
- The discount the buyer needs is focused on the 1st lien, so the
overall discount on the deal is reduced.
Breaking down 70 / 20 / 10:
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70% = 1st lien
Main note secured by the property, usually sold to a note buyer at about 65–70% of value.
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10% = Down payment
Cash the buyer brings to closing, which reduces your exposure and aligns the borrower.
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20% = 2nd lien
This is the difference between the sales price and the sum of the 1st lien and the down payment:
2nd lien (20%) = Sales Price − (70% 1st lien + 10% down)
You usually keep this 2nd lien for additional yield and upside.
