Aaron, this does sound like an opportunity but the truth lies in your numbers and investment strategy. Personally I️ would hire a real estate attorney to help with that the paperwork and be your advocate...MUCH less expensive than using an agent. I️ too am looking for owner financed properties and this seems to be the best route. PM me and we can swap stories !
Like Tristan said, the answer lies in the numbers you're working with. I'm unclear if you're saying the property barely breaks even with him living in it if you paid cash/conventional mortgage vs seller financed or if it barely works in either scenario. If it doesn't look like it will be profitable obviously don't do it.
I've been listening to a lot of Larry Harbolt and Tyler Scheff's podcasts and they are big fans of seller financing. Listening to them it seems like few investors try seller financing because they are listening to the conventional wisdom of "cash is king," not because there is some horrible catch to seller financing. The thing is you will have to do your homework on what you can realistically afford to pay the seller and you might need to educate the seller on why this strategy could be a good thing for them and it seems that many people just don't want to make the effort.
Tristan and Josane, I apologize for the late reply! I thought the forum would have me Follow it automatically and assumed nobody had replied. That sounds like sound advice about the RE Attorney. I'll get looking around for one right away. I'll re-evaluate my numbers as practicing definitely helps point out flaws in early assumptions.
I think my biggest concern (beyond just getting myself into a money pit) is that somehow I'd be inadvertently screwing over someone who's a genuine friend. I suppose that's where the attorney would help to point out if there are any catches that he could somehow get burned in.
Josane, your point about some people just not wanting to make the effort is so true about so many aspects in life and was for me (and listening to the podcasts here, so many others) what is convincing me of why more people don't get into real estate to begin with. I'm a newbie, though, so for whatever that's worth lol
So, the general numbers are like this:
Purchase Price: $635,000.00
Purchase Closing Costs: $6,350.00 (I'm not even sure how this applies in private seller financing, so any insight to this would be extremely helpful)
Estimated Repair Costs: $10,000.00 (This is just set aside for the unexpected up front issue)
Total Cost of Project: $651,350.00
After Repair Value $635,000.00
Down Payment: $10,000.00 (He doesn't seem to have any big hobbies or desires for purchase, so I don't think he has much reason for any big up front payout)
Loan Amount: $625,000.00
Amortized Over: 30 years (I'd expect the note/his will would write in to transition payment of this over to his daughter as just a nice steady cash flow that won't require any headache unlike a property sale during execution of a will)
Loan Interest Rate: 4.000% (basically right at inflation)
Monthly P&I: $2,983.85
Unit 1 Rent: $1,600
Unit 2 Rent: $1,600
ADU Rent: $1,000
Vacancy: 5% ($210/mo)
CapEx: 5% ($210/mo)
Repairs and Maintenance: 5% ($210/mo)
Insurance: 2% ($80/mo)
First year annual CF: -$367, ROI: -1.39%
But by year 2 annual CF: $1,350, ROI: 5.12%
and by 5 years in annual CF: $6,960, ROI: 26.42%
....what am I doing wrong? What assumptions are unrealistic/unreasonable?
Looks like a really bad investment unless you get Really good appreciation. Your cost numbers seem way off.
Not sure where you came up with 1% closing costs....conventional financing would be 3-6%, not sure about your deal.
Repair, maintenance and capex are all low.
Can you really insure this for $1,000/year?
Actually Wayne that's really helpful. I have no idea how much this type of insurance costs and closing costs rates are when doing seller financing. Poked around the forums and started another thread on it, but to no avail.
I used the example percentages off the "how to" videos for using the calculators as my only real stepping stone, so I'm a little surprised to hear those are low, but I'm wide open to input.
Any idea of what more reasonable numbers would look like?