What Is the Morby Method? A Plain-English Guide With Examples

The Morby Method is a creative-finance structure that stacks a DSCR investor loan with a seller-carried second to buy a rental with little or no cash out of pocket. Named after Matt Morby, who popularized the structure in the 2020s investor community.

The mechanics are not exotic. The trick is in the stack: a debt-service-coverage-ratio (DSCR) loan from a non-conforming lender for the bulk of the price, and a seller-carried second mortgage for the rest. The seller becomes your down-payment lender. The DSCR loan underwrites the property's rent, not your W-2.

The 30-second definition

You buy a rental property with two loans:

1. A DSCR first mortgage for ~75–80% of the purchase price. DSCR lenders qualify the loan against the property's projected rent, not your personal income or DTI.
2. A seller-carried second for the remaining 20–25%. The seller agrees to receive their down-payment portion as a note instead of cash at closing.

You bring closing costs and reserves. The DSCR lender funds the bulk. The seller carries the gap.

End result: you took title with very little cash down, no DTI hit on either loan (DSCR is property-qualified, not borrower-qualified the same way), and a payment structure the rent can support.

A real-numbers example

A $400,000 rental in a market where it rents for $3,200/month.

• DSCR first: $300,000 (75% LTV) at 8.0% interest, 30-year amortization. Monthly P&I roughly $2,201.
• Seller-carried second: $100,000 at 6.0% interest, interest-only for 5 years, balloon at year 5. Monthly interest-only payment $500.
• Cash to close: maybe $8,000–12,000 in closing costs, lender reserves, and the title-side costs the seller didn't agree to cover.

Total monthly debt service: $2,701. Total cash-to-close: ~$10,000 instead of the ~$80,000 a conventional 20%-down deal would require.

DSCR math: rent ($3,200) ÷ debt service ($2,701) = 1.18 DSCR. Most DSCR lenders want 1.0 minimum, 1.20 to get their best rate. You're inside the box.

What both sides actually got:

• You: a rental with $499/month gross before operating expenses and only $10K of your own capital tied up — capital-efficient deployment that lets you scale.
• Seller: their full asking price, an above-market interest income stream on the carry-back portion, and a property they don't have to manage.

Why this structure exists

Two real reasons the Morby Method became a thing:

1. DSCR lenders proliferated 2020–2024. Non-bank lenders started underwriting on the property's cash flow alone. That broke the historical link between investor scale and personal-income gating. You no longer need a $300K W-2 to buy your 11th rental.
2. Sellers got softer on cash-at-closing in soft markets. When rates jumped, conventional buyers dropped out and many sellers had to accept creative terms or relist at a haircut. Carrying paper on the down payment became the path to "full asking" in lots of secondary markets.

The Morby Method only exists because both sides have a reason. DSCR lenders want loans, sellers want their number, and active investors want to buy without writing six-figure checks.

The risks (the ones nobody mentions in a YouTube video)

1. DSCR lender rules on second mortgages. Some DSCR lenders explicitly prohibit a second-position lien at closing. Others allow it but require disclosure. Calling the loan "subject to" a second they didn't approve is fraud. Find the lender that allows the structure before drafting.

2. The balloon on the seller second. A 5-year interest-only with a balloon means the full $100K is due at month 60. If the property hasn't appreciated, your DSCR isn't strong enough to refi out of the second, and you can't bring cash, the seller can foreclose. Mitigants: amortize the second, build appreciation buffer, commit to refi on a schedule.

3. DSCR rate is higher than conventional. You're paying 1–2 points more than a Fannie Mae 30-year. That's the cost of property-qualified underwriting. Make sure the rent supports the payment after you account for the higher rate, not before.

4. Combined LTV close to or above 100%. If you finance 75% with DSCR + 25% with seller-carry, you're effectively 100% LTV. Negative equity from day one. A bad rental year + a market dip + a balloon date = a bad month. This structure rewards investors who can stress-test their deals; it punishes investors who can't.

When the Morby Method fits — and when it doesn't

It fits when:

• The property cash flows comfortably at the combined debt service (DSCR ≥ 1.20 is the safe number)
• The seller is open to carrying paper for the down payment portion
• You have a DSCR lender already lined up that allows secondary financing
• You can refinance or pay the balloon on schedule
• You want to scale rentals without depleting reserves

It doesn't fit when:

• The DSCR comes in below 1.0 (you're paying out of pocket every month)
• The seller wants all cash at closing
• Your DSCR lender prohibits second-position liens
• The property won't appreciate enough to refinance the balloon
• You don't have reserves for the bad-rent quarters that always come

How it relates to other structures

The Morby Method is one path. The others — Subject-To, full seller carryback, price negotiation, additional capital — are usually the right answer when Morby isn't. DealGapIQ runs each property against the four standard offer paths so you know which structure actually fits before you write the offer.