Hello, just looking for advice, I just received verbal acceptance on a seller finance deal for a Mirror sided duplex three bed two bath for purchase price of
640 K
Six year balloon
$62,800 down
$1300 a month
0% interest
I feel like this is a solid deal ever would like some feedback from multifamily investors I've done creative finance like this in the past.
@Collin Perri Overpaying to achieve better terms is not recommended. If a property has been on the market for four months and has not sold at $600,000, that is a strong signal the market does not support that value. The rent roll already suggests that $600,000 is a stretch.
You suggest the property will be worth $600,000 in six years, but what if it doesn’t appreciate as expected? In that scenario, you’re left with an inflated basis, limited exit options, and a balloon obligation that becomes increasingly difficult to refinance or retire.
Curious to hear how you came up with this strategy and offer terms?
I'd first want to know it appraises for $640K. If not, you are going to have a very hard time refinancing in 6 years and you could lose it to foreclosure. Also, with seller financing, never look at what the payments will be now; look at what the payments would be like with traditional financing.
A $577K loan would mean principal and interest payments at about $3,700 per month. You did not provide any information that could estimate taxes and insurance, but to be cashflow positive, you are probably going to need to rent each side for $2,500 per month.
So even if you can refi out of the first loan, can you float negative cashflow? If you can only rent each unit for $2,000 per month, you are likely going to have to come out of pocket $500 every month to feed the beast. Will you have enough cash at the time it needs a new roof or HVAC system?
I would only move forward if it both appraises for $640K or more AND you could rent each side today for at least $2,500 per month.
So here’s the story the listed price was 600 K. The property has been on the market now four months. In order to entice the seller to do seller financing I offered a higher purchase price with a sub 10% down payment and $1300 a month. It brings in $3200 a month in rent currently. taxes and insurance costs together are 403/month. I’m saving 20% of gross rental revenue for Capex maintenance and vacancy and management.
Cashflow after all expenses is 850/month
At the end of the balloon I would owe approximately 483K after principal pay down .
One side is currently renting for 1450 the other side renting for 1750 so room to improve rents to market value in the first one to two years.
I was thinking my risk was more so the interest rate at the time of refinance at the end of the six year because it will likely appraise for 600-640 in 6 years but that’s where the risk is yeah?
Knowing this, is it too risky?
@Collin Perri Overpaying to achieve better terms is not recommended. If a property has been on the market for four months and has not sold at $600,000, that is a strong signal the market does not support that value. The rent roll already suggests that $600,000 is a stretch.
You suggest the property will be worth $600,000 in six years, but what if it doesn’t appreciate as expected? In that scenario, you’re left with an inflated basis, limited exit options, and a balloon obligation that becomes increasingly difficult to refinance or retire.
Curious to hear how you came up with this strategy and offer terms?