Should I pay more for Seller Finance???????

Question

Hey BP members im coming along my real estate journey and was able to successfully attain my first House Hack (ill post the story soon). This transaction brought me a lead to a motivated seller, that wants to do seller financing. He is willing to meet my terms, so the cash flow is there(700$-1100$ after all expenses including PITI and 20% of annual rental income for maintenance). It is a total of 4 properties and an extra lot, he is looking for 900k-1.3M for all 5 properties. After doing my comps the properties seem to be valued at 800k-900k, but the seller is willing to do a 10% down payment and 2k-3k monthly payments YES 2K-3K monthly payments including principal and interest, 3%-4% interest, amortized by 20 years and the balloon payment at the end of the 20 years. The properties are 5 miles south of an up and coming area (currently it is on the rougher side of the area).Each house will probably need 10k-15k to get to market rents. They are zoned to MF-1 meaning I am able to build multi family here in the future.

-Is it worth going into this amount of dept?

-Creative ways to come up with the 10% down payment (partner, private money)?

-Only my potential second real estate deal, so I am nervous to take on this much property at once?

-Any advice or help will be much appreciated!!

-Property details 2 small duplex 2b 1b each side, 2 SFH 3b 1b each

-Feel free to PM for more details

-This is a long term hold.

-Is it worth going into this amount of dept?

-Creative ways to come up with the 10% down payment (partner, private money)?

-Only my potential second real estate deal, so I am nervous to take on this much property at once?

-Any advice or help will be much appreciated!!

-Property details 2 small duplex 2b 1b each side, 2 SFH 3b 1b each

-Feel free to PM for more details

-This is a long term hold.

Malcomb Stapel · Answer

@Juan Aguirre  so just to be clear, are you getting $700-$1100 cashflow per unit, or for the whole 1.3million dollar deal?

As for the question of paying more for seller finance: general guidance is "their price, your terms."

Miron Briley · Answer

Send it over, lets take a look at it together.

Scott Wolf · Answer

@Juan Aguirre, I'm confused, the numbers don't add up.  Assuming the best case scenario of $900k with 10% down, you're looking at a $4,492 monthly payment for a 20 year fully amortized loan.  If the amortization is 30 years, that's still a monthly payment of $3,415, with the remaining balloon at year 20.  Unless you mean he's willing to do interest only(despite saying principal & interest) for 20 years.

Taking out my confusion, 700 per month is $8,400 a year over a $90k down payment is a 9.4% CoC return.  But taking into account the 10k per home to get them market ready, you're looking at a 6% CoC return, which isn't great, but you got to figure out your parameters.  Also, these are all the best case scenario for you(lowest purchase price, lowest renovation cost, etc.)

Finally, based on you needing to find creative ways for the down payment, it makes me think you may be getting in over your head to begin with.

Juan Aguirre · Answer

Hey Malcomb, sorry for the lack of clarity, but yes it would be a cash flow of 700$-1100$ on a monthly basis for the whole deal.

Juan Aguirre · Answer

Thank you Scott for your insight, and yes he is willing to do interest only for 20 years so the payment would be in that 2k-3k monthly payment for interest only. Although the cash flow isn’t a substantial amount, I am able to take on 1 million dollars worth of debt at a 3% interest rate in an up and coming area. If I were to hold on to this property for the 20 year term I don’t see a situation where this wouldn’t be beneficial. Or am I missing something?

Should I pay more for Seller Finance???????

Most Popular Reply