We have an opportunity to purchase a Multifamily for 47k. We own several properties now so instead of traditional financing, made an offer to the owner for $52,400 to be paid in 3 years with no interest. The deal looks like this —20k down, $900.00 per a month for 3 years. The total equals $52,400. The advantage of course is the 0% interest rate and the fact that property will be paid for in 3 years. We also will save more 30k on the overall actual cost ( of compound interest) on the property since we are not using bank financing. My husband is not a fan of the offer because the property will not cash flow for three years and we will be paying 217 out after rent payments. What are your thoughts and advice?
Rental Property Investor · SE Michigan · Member since 2014 · 4k+ posts · 6k+ votes
5y
I know you are focused on the financing, but I can't get my head around the low price and low cash flow, and wonder if this is in a dangerous area. Since you have other properties, I'll presume you are comfortable and familiar with the neighborhood.
I'm not a huge fan of paying off properties quickly and love cash flow. Having cash flow is like having insurance against anything bad that might happen. Negative cash flow leaves you unprotected. Frankly, I'd rather stretch those payments out for 5 or 10 years if it got me positive cash flow.
The $30K you quote must be the full amount of interest paid over a 30 year amortization. However, a dollar today is not worth the same as a dollar 29 years from now, and by putting a huge 38% down, you are pulling ahead your costs. You are paying in the most expensive dollars (today's dollars) and avoiding paying in the least expensive dollars (ones in the far-distant-future). Frankly, I'd investigate to see what the deal looks like with a bank loan.