Balloon Lending for a 4 Plex - looking for help

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Balloon Lending for a 4 Plex - looking for help

Carol Osman
Member since 2020 · 5 posts · 1 vote

Hi everyone,

Looking for some help or direction on our first investment property, specifically with the seller finance balloon option vs traditional financing, thank you!

Below are the details: 

  • 4 Unit Multi Family asking $249,000 
  • $500 Rent Per Unit = $2000 Rental Income (all original tenants occupied since 2007)
  • Asking Price = $249,000
  • Minor Cosmetic to $0 Rehab
  • Potential Rental Income in the area = $600 to $700 per month
  • BiggerPockets Rental Calculator AS IS:

    • Monthly cash flow -$203 /mo

    Income -$2,000 /mo

    Expenses -$1,796 /mo

    CoC ROI - 4.35%

    Seller Financing option: 

    • Balloon Payment - 20% down for 2 Year Terms @ 7% interest

    We believe we can bring the rent to $650/unit within the first 2 months. 

    What should we be considering with our financing options ? Any help is greatly appreciated!

      0Reply
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      Most Popular Reply

      Wale LawalBusiness Member
      Real Estate Broker · Houston | Dallas | Austin, TX · Member since 2018 · 5k+ posts · 2k+ votes
      5y

      Renegotiate the asking price. Also, are you considering Cash-Flow only?

      What is the projected appreciation like? If appreciation is great then it may worth pursuing. 

      If it does not work out, then look for another property.

      Goodluck

      [email protected]832-776-9582Podcast Guest on Show #469
      NETWORTH BUILDERS5236 Reviews
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      2Reply
      See this reply in the discussion

      15 Replies

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      • Ellis San Jose
        Specialist · Westlake Village, CA · Member since 2010 · 1k+ posts · 781 votes
        5y

        There are no specific details in this post.

        0Reply
      • Account Closed
        Contractor · Flourtown, PA · Member since 2016 · 23 posts · 11 votes
        5y

        Ellis is right the information is not complete. 

        The asking price is high given the rents.

        The owner financing is also high at 7%, 20% down.

        You should be able to get commercial lending, 20% down, closer to 4%, 25 year term. I would not pay more than the "1% rule" I like closer to 1.2-1.5.

        Maybe work on your numbers on a few more deals, make it very comfortable to do the calculations. And find a commercial lending broker who will take time to educate you on the details of the #s.

        Good luck! 

        D

        2Reply
      • Carol Osman
        OP
        Member since 2020 · 5 posts · 1 vote
        5y

        Thank you for that Diane I appreciate it, moving on to the next property.

        0Reply
      • Osvaldo Benavides
        Member since 2020 · 60 posts · 7 votes
        5y

        @Carol Osman what market are you in?

        0Reply
      • Carol Osman
        OP
        Member since 2020 · 5 posts · 1 vote
        5y

        @Osvaldo Benavides Houston and South Texas

        0Reply
      • Mark Welch
        Member since 2019 · 19 posts · 9 votes
        5y

        Carol,

        You are missing the following important numbers:

        Annual Property Taxes

        Annual Property Insurance

        Landlord Paid Utilities - If applicable 

        HOA - If applicable

        Know your cost to CURE: Cosmetic - Light rehab - Heavy rehab

        **Side note, always get start and ending date of leases**

        1Reply
      • Tunde Mendes
        Houston, TX · Member since 2019 · 4 posts · 2 votes
        5y

        @Carol Osman

        I am in Houston as well. I have been analyzing properties but have not closed on anything yet. It seems in Houston, that many properties don’t cash flow after all the expenses are considered. You would have to cut the ask price by $50-100k to make the numbers work. Have you tried countering the list price?

        1Reply
      • Osvaldo Benavides
        Member since 2020 · 60 posts · 7 votes
        5y

        @Tunde Mendes I totally agree!

        0Reply
      • Wale LawalBusiness Member
        Real Estate Broker · Houston | Dallas | Austin, TX · Member since 2018 · 5k+ posts · 2k+ votes
        5y

        Renegotiate the asking price. Also, are you considering Cash-Flow only?

        What is the projected appreciation like? If appreciation is great then it may worth pursuing. 

        If it does not work out, then look for another property.

        Goodluck

        [email protected]832-776-9582Podcast Guest on Show #469
        NETWORTH BUILDERS5236 Reviews
        WebsiteView Page
        2Reply
      • Tunde Mendes
        Houston, TX · Member since 2019 · 4 posts · 2 votes
        5y

        @Wale Lawal

        Appreciation is a good point but we have to analyze the deal at point in time. Appreciation is the icing on the cake. The properties that I have analyzed have been from websites, so not off-market deals.

        I think it’s worth having the counter discussion.

        Great topic!

        0Reply
      • Carol Osman
        OP
        Member since 2020 · 5 posts · 1 vote
        5y

        @Mark Welch

        Returns:

        NOA $18,480

        CoC 11.30%

        Pro forma cap 7.39%

        Purchase cap 7.39%

        50% Rule:

        Total monthly $2,400

        50% expenses $1,200

        Monthly P&I $1,012

        50% rule cash flow $187

        0Reply
      • Carol Osman
        OP
        Member since 2020 · 5 posts · 1 vote
        5y

        @Tunde Mendes there’s an ongoing conversation on Sales Price. We will see if Seller budges.

        1Reply
      • Jesse MillsPro Member
        Investor · Chanhassen, MN · Member since 2014 · 7 posts · 1 vote
        5y

        @Carol Osman are you able to get commercial or traditional financing? If not, I’ve got seller financing options I’d be happy to chat with you about in multiple markets around the country. It’s a great way to get into a property as long as the numbers make sense.

        0Reply
      • Stephanie Pham
        Indianapolis, IN · Member since 2020 · 9 posts · 2 votes
        5y

        @Jesse Mills i might be interested in your seller financing options

        0Reply
      • Jesse MillsPro Member
        Investor · Chanhassen, MN · Member since 2014 · 7 posts · 1 vote
        5y

        @Stephanie Pham hey let’s set up a time to chat. I will send you a message.  Thx!

        0Reply
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