Potential Seller Financing Flipping Opportunity: What are the Options? (Follow-up... I Got an Offer!)

As an article I wrote a couple weeks ago about a potential seller financing opportunity in which I have gotten a tremendous amount of negative comments from, today I have actually gotten an offer close to what I have been looking for. As a result, I would like to further elaborate the math on this deal: Just a quick recap in case no one read the earlier article, I had purchased a 2 bedroom 2 bed condo in Las Vegas cash for about $65,000 net costs. I am looking to flip the property in a seller financed deal selling for a premium price. In this case, I am looking for a neighborhood of $90,000 with the buyer paying 50% down and I'd carry a 8% loan 30 year amortization with a 3-5 year call. Seems like a lot of people are saying in my previous article that I was crazy to expect a price like that or people would be crazy to buy. But hey, what do you know, I've gotten an offer today.
The Offer on my Condo...
A buyer today offered to put down $28,000 instead but is willing to repay the principal of the loan in installments of 5 years at 8%. Meaning at the end of every year he would pay me back a fifth of $62,000 (or $12,400) for each of the 5 years. Would this be a good sale for me? Or should I keep renting the condo until real estate prices go back up to a crazy level again? It was really a gut decision until I put the numbers together. So let's crunch some numbers again. First, let's run my returns if I keep the condo rented:
Conclusion
So as you can see, the time value of money is extremely important and can play a crucial role in determining your return. I did not realize the magnitude of the difference until I started breaking out the investment banking style calculations. The big difference here is due to the fact that I get $28,000 right back from the start (sure I've had this property for close to a month now but let's not get too picky with the numbers). So to those naysayers, I say "yes" - seller financing is possible and can work. If you can get the buyer to pay large parts of principal back around the beginning you can really boost your investment returns. While most seller financing asks for a balloon payment at the end of three, five, ten, fifteen years etc, I say go for principal pay down in each year instead. Obviously this may not work for many people, but for those who can do that, this would help your returns so much more. Perhaps BPers are right to think I am a greedy speculator/gambler/crazy guy, I just responded to the agent that I would like 12% interest only instead of 8% since the buyer is only willing to put down $28,000 and not the $45,000 I asked for. Why not? We'll see what happens... Photo: kevin dooley