Duplex Deal Question

7 Replies

Hi BP I have a question about a duplex I’ve been offered to buy. It is located in my rural town of around 15000 people. Both units are 2 bed/1 bath currently renting for $775/month each. I purchased the duplex across the street and have total $100k in after remodel. I raised the rents to $900/each (I think actual market rent is around $850). The property I’m looking to buy was offered by the same seller off market for $110k. It’s in good shape other than paint and a fence and is 100% occupied. The seller has offered to finance the deal for me at 5% interest over 15 years with $20k down. My taxes/insurance come to around $250/month and the note would be $712. I was thinking of asking for interest-only for the first year (I would recoup 50% of my invested capital this year and the rest over the next 1.5-2 years). My partner in the deal doesn’t like that we’re paying $110k and having to put 10k in on top since that will put us $20k higher than we have in the property across the street. In my opinion, the pros of seller financing/being across the street from a property we own/area that is appreciating and 2 minutes from the interstate make this a good deal even tho it’s slightly less cash flow. I told my partner I would make the post to see what you guys think. Any advice is greatly appreciated!

Personally I agree with your partner and would never overpay because of seller financing. It's a similar concept to owners who do 1031 exchanges and then over pay to avoid taxes. One ? WHY? FYI 20% down seller financing is no deal that can be done with any commercial lender all day every day. Happy hunting !

If you don’t like the deal then be more aggressive with negotiations. Also, don’t be afraid to tweak it. Ie. Counter offer $105k at 10% down and 4.5% interest. You have several levers at your disposal regarding the terms so don’t just focus on price, the other terms are just as important.

The duplex we bought across the street for $63k. It had flooded and was gutted to the studs.  We did a $40k remodel for $103k all in so it’s hard to use that as a comp. paying $110k is probably a little under market value when you compare the rents to other duplexes in the area.   Regarding the deal in question, it’s in an area right by my house that I’m very familiar with. I’m mainly curious if you guys think the cash flow is too low (the 15 year financing jacked up my monthly). It puts me around $300-$350 per door after debt service.  My property across the street brings in $450 per door including mortgage which I’m quite happy with.  I’m certainly not counting on appreciation at all it’s just a bonus as usual.  

Chris, wouldn’t you agree that 20% seller financing is superior to bank financing when you factor in 0 discount points/ origination fees paid and the fact that I don’t have to qualify for a loan?

@Brynt Rushing , how were you able to fund the one across the road? Seems to me that you should qualify for a "normal" 20-25% down loan, on similar or even better terms?

Try to find out his best cash price. If he still won't budge from $110k, he probably thinks he has you bluffed. Has he? Good luck...