A SAM can offer benefits to both buyers and sellers, especially in markets where prices and interest rates are high.

A Shared-Appreciation Mortgage, also known as SAM, is a carryback mortgage in which the purchaser of a home shares a percentage of the appreciation in the home’s value with the seller when a sale, refinance, or loan termination occurs. Do not confuse this seller carryback with the institutional investors who share appreciation with homeowners, a practice that became common during the past few years as housing prices rocketed.


When the market is appreciating rapidly, it is sometimes difficult to convince a seller to sell on reasonable terms or to carry back owner-financing. The SAM involves a low interest rate, but then gives the seller a percentage of the profit at the end of the loan term. This approach also works in a high interest rate environment because it helps the buyer to achieve a reasonable cash flow to sustain the property.

Because it is simply a promissory note with a few custom terms added, a “standard form” for this kind of note can sometimes be found on the internet. A real estate attorney or escrow officer can also probably assist with this type of note.

Seller Benefits

The SAM offers the seller numerous benefits:

  • Using a SAM gets the property sold, often at full price.
  • An “installment sale” under IRC 453 can defer income taxes.
  • The seller doesn’t have to make payments on senior loans anymore.
  • It eases a sale when prices are high.
  • It eases a sale when interest rates are high.
  • The seller can trade the note, sell all or part of it, or borrow against it (i.e., hypothecate/collateralize it).

It is important to deal with intelligent, good-natured sellers. The relationship will require maintenance. Additionally, the seller must believe the property will appreciate over the term of the loan; otherwise, they will not accept the SAM. Finally, expect the seller to take the proposal to an attorney. For best success, arm them for the meeting—or even arrange to attend!

Buyer Benefits

  • The SAM is good for buying in high-priced markets and high-interest-rate environments.
  • Price is less important than usual.
  • Terms are negotiable, building a relationship with the seller.
  • SAM facilitates the purchase.

Some investors in high-priced areas just don’t want to buy “out of area” for all kinds of reasons. They prefer to keep their money close by. Using a SAM can make this possible. The same is true if interest rates are rising or are high. A SAM can be used to still make acquisitions.

The best opportunities are those in which the seller has a substantial equity. The more equity there is, the more payments can be reduced by the seller participating. Whether first and/or second loans exist impacts how much seller participation can be. Ideally, the SAM should be structured to give the buyer a positive cash flow, at least. Keep in mind that risks always exist, including vacancies, evictions, rehab needs, and damaging events (e.g., fire, wind, flooding). Clearly, breakeven won’t be enough.


Sometimes a seller who wants to accomplish a sale might not be enthusiastic about carrying back a SAM. In this instance, to encourage the buyer to pay off early (by selling or refinancing), the parties could include a “phase-out clause” that reduces the seller’s percentage based on an earlier payoff.

Another consideration is that a SAM works well for property “flippers,” particularly in a rising market. Typically, the term is under a year because that is often the time frame for a rehab and sale. The “flipper” gets lower interest costs, and the seller gets a share of the profit. This is a good way to convince the seller to make the deal.

Also, when selling a property, a SAM can be carried back for the benefits previously mentioned. This is especially true of the “installment sale” under Section 453 of the Internal Revenue Service code. The net profit is basically spread out over the term of the loan, which could reduce the applicable tax bracket. For the seller, the longer, the better. Definitely consult a pax professional when consideringthis option.

  • Bruce Kellogg

    Bruce Kellogg has been a Realtor® and investor in California for 44 years. He purchased about 350 investment properties for himself, mostly with high leverage and tax-deferred exchanges. In the process, he made three fortunes, and experienced three real estate downturns since 1980. He has transacted about 550 properties for clients, creating fortunes for several. His book, Real Estate Investing Wisdom, is in publication, and he can be reached at Brucekellogg10@gmail.com or (408) 489-0131.

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