Is this a good move?

Question

Have a primary mortgage 36,000 left at 5.6% and 12.5 years left.   Have a rental worth 30,000 that is cash flowing 100 per month.  I used a line of credit on my primary for the rental.  I now have about 13,000 in equity to use in case of emergencies.

My aquaintance/friend is selling his house for 45,000.  He's willing to do seller-financing for 25 years at 6.5% interest and no down payment.  The rent I could get would be around 500-525 and would cash flow around 80-100 per month.

Questions:
1.)  Is it wise to allot 13,000 to cover the expenses/emergencies for three rental properties?   (we're moving out of the primary soon which would make 3 rentals, total.)
2.) Is it wise to do owner-financing for 25 years with an aquaintance/friend?

-BryanP

Paul B. · Answer

"My aquaintance/friend is selling his house for 45,000. He's willing to do seller-financing for 25 years at 6.5% interest and no down payment. The rent I could get would be around 500-525 and would cash flow around 80-100 per month."

How do you figure? P&I is $300/month. Are you budgeting $125/month for vacancy, taxes, insurance, repairs, and replacement reserves? That's only 25% of the rent.

Why not manage the property for your friend for $75 a month?

Sinco Pare · Answer

I would second the idea NOT to be involved in renting or doing business with a friend, and even worse idea for family! For an acquaintance, I might think differently.

Ryan ODonnell · Answer

I would say No to both. Depending on the area, and 500-525 doesn't sound like it could be a great area but I could be wrong, you can burn through 18k on turnover real easy on 3 props. Then again, if you have your team together, then you may be fine if you can do fix-ups cheap. You never know what a renter will do!

Rob Gillespie · Answer

My only answer is that I sold my sons Godfather that I was best man in his wedding, that introduced me to my wife a home on owner financing. He went through a nasty divorce, developed a lot of personal problems, trashed the house, which was worth about 200k, and I had to evict him. Needless to say how that turned out. 
There are a lot of deals out there, look for one without personal attachments. :roll:

Bryan P. · Answer

I have it wrong.  I have approximately 18,000 in equity to use in case of emergency.  Every year that would increase by approximately 4,500 dollars. So next year I will have over 20,000 in that available equity on line of credit.

-BryanP