Bond for Deed?

[Katie West]

Hi everyone! So, the question I have isn't actually for an investment property at the moment. It will eventually be rented out, but for now will be my primary residence. I put an offer on a home for $88k. It was accepted and we moved forward. My financing was a VA backed loan. When the appraiser evaluated the property, he assigned the value at $65k. The seller purchased the property in 2008 for $86k.

Now, the comparable used in the area are accurate, however, there has been a lot of activity recently of investors buying similar sized distressed properties for flip, or renovate and rent. Overall, property values have increased. This property has been fully renovated and needs no work. An independent apparaisal was conducted in 2013 that valued the property at $86.5k. We requested another look from the VA, but it was declined.

So, we sent the request that the sale price be lower to the appraised price, but the seller cannot come down $20k as she still owes more than that.  She has indicated that she is open to a bond for deed.  I believe I am willing to entertain this if we at least split the difference, so set a purchase price of $75k.

I know that when I go to rent it in a few years I'll be able to rent for at least $900 per month based on the area.  My loan payment at $88k was only going to be $560, so it cash flows. 

What do you all think of this deal?  I personally love the home, but aside from that, it will make a great rental soon.  Great schools, close to in demand areas.  I just didn't expect my first home to be a seller finance.

Any suggestions on structure and such are also welcome.  Oh, and I am in Shreveport, LA for any locals.

[JJ Conway]

I would like to learn more about bond for deed in Louisiana - I recently moved here and I understand real estate laws are different than what I'm used to. @Michael Faulk or @Terry Olivier I'd love the name of that lawyer, thanks!

@Katie West One thing I will say is not to dismiss the appraisal based on a different 2013 appraisal. While VA traditionally appraises low, that's quite a huge difference (23K) and is a sign worth paying attention to. Your situation reminds me of one of my properties- one I fell in love with due to its old architectural bones and the thought of possibly living there. I jumped in without fully researching the issues, and had one problem after another! House was great. It was the direction the neighborhood took that hit me hard.

The other thing is, not to judge the value of a property solely on it's income production. I have a home in riot ground-zero Baltimore City.  It brings in $900/mo.  Someone looking for a 10% cap rate would be willing to pay 90K for that cashflow.  However, the house is really only worth maybe 50K. As in, if I had to sell it in a hurry, retail price would be about 50K and investor price would be about 40K.  See the difference?  Now with you wanting to live there for a bit that does up the amount one should be willing to pay, but still don't discount the appraised value.  Really look at what comparable homes have sold for (not what they're on the market for) around your chosen property.  Wish you the best!