10,000 0% interest loan for owner occupied duplex. Is there a downside?

6 Replies

I am looking into purchasing an owner occupied duplex in Burlington, VT. The local economic development office offers $10,000 deferred payment loans at 0% interest with priority given to first time home buyers (that's me!) and it is something we are looking into using if we find the right property. There are many restrictions but the one that makes me wonder if it would be worth the 0% loan is:

The one restriction that has me wondering if it would be better to not take advantage of this program is: Required affordability in the tenant’s unit: Purchaser cannot increase the rent of the rental unit for 1 year from loan closing and rent cannot increase more than 3% per year for the 4 subsequent years OR rental unit is occupied by a Section 8 tenant for 5 years from loan closing.

I would love anyone's advice/opinions. 

I would do it. no question about it.

Well technically I wouldn't do it because personally I wouldn't want to live in a duplex. I prefer a detached home.

But it appears you don't have an issue with that aspect only an issue with the rental restrictions which would not deter me from the deal in any way.

@James Wise thanks for your input! 

So when running numbers would you calculate the amount that you are going to get for those 4? years or calculate the amount you can rent it for after those 4 years are up?

I would run the numbers assuming no rental increase for the 5 years, then an average rent increase going forward, and assume standard expense increases for the entirety of the deal ... If the numbers make sense, I would jump on it. Free money is good money in my book :-)

Originally posted by @Nicole Carey:

@James Wise thanks for your input! 

So when running numbers would you calculate the amount that you are going to get for those 4? years or calculate the amount you can rent it for after those 4 years are up?

I would just run the numbers at the 1st year price. 

I do not do "standard" rental increases. I increase when I can & when it makes sense. Sometimes I can increase but choose not to anyway.

One of the main factors that keep me from raising rents is how much or how little a tenant bothers me.

I'd much rather have 1 tenant for 5 years with no rental increases than 3 tenants in 5 years with annual increases.

@Nicole Carey  

Great deal!!  Take the money and buy a home.  Any amount of money at 0% is a wonderful amount of money :)

On a 5 year loan at 4.5%, you are saving $1181 at 0%.  Plus if you increase the rent "only" 3% you make an additional $3700 over 5 years:

Year Monthly Rent

1 $1,000.00

2 $1,030.00

3 $1,060.90

4 $1,092.73

5 $1,125.51

Total $63,709.63

Total Unadjusted $60,000.00

Additional Rent $3,709.63 

Free eBook from BiggerPockets!

Ultimate Beginner's Guide Book Cover

Join BiggerPockets and get The Ultimate Beginner's Guide to Real Estate Investing for FREE - read by more than 100,000 people - AND get exclusive real estate investing tips, tricks and techniques delivered straight to your inbox twice weekly!

  • Actionable advice for getting started,
  • Discover the 10 Most Lucrative Real Estate Niches,
  • Learn how to get started with or without money,
  • Explore Real-Life Strategies for Building Wealth,
  • And a LOT more.

Lock We hate spam just as much as you

Get the Ultimate Beginner's Guide

Sign up today to receive the popular eBook for free!