Hello! I'm currently evaluating a deal now. Current owner has offered owner-financing at 15% down and 8% interest. However, I qualify for a conventional commercial loan (it's a 5-plex) at 25% down for a much lower interest rate (say 3.75%)
It appears owner-financing kills my cashflow, but my cap rate stays the same.
Anyone have feedback on pros and cons of my situation? Please let me know if you need more info!
Thanks so much,
Is there any value-add potential there? Maybe purchase it with owner financing, take care of renovations and increase NOI, then refinance it with your local bank.
There could be value-add opportunity.
My model is showing that owner financing kills my cash flow due to higher interest rate with shorter time span (I.e. higher P&I) which is why I’m hesitant to move forward with that approach.
Should I be focused on cash flow or cap rate here?
If there is no value-add opportunity (you cannot increase NOI by 20%+ over the next 3 years) I would get the long-term debt from the bank. If there is a value-add opportunity, you should focus on increasing the value of the property to try and extract your down payment when refinancing...at least a portion of it.
Makes sense, thanks!