Seller Financing - Real World Deal

[Joe Conklin]

So I am working with an investor who is looking to owner finance a rental.  This is my first time using this approach and have some questions.  I want to ensure that I am understanding the deal correctly.

Purchase Price: $140,000

Down Payment: 10% ($14,000)

Interest Rate: 5%

Balloon Payment: "1 year Balloon payment of balance".

Rent for area: $1,400 / month

Taxes: $4,000 ($335/month)

Questions:

1. What is "1 year Balloon payment of balance"?  Would it be 12 months of P&I = $671.56 x 12 = $8,058.712

2. When determining "cash on cash return" how much should I factor into deal for closing costs (attorney fees) etc.

3. Any other factors that I am overlooking when dealing with seller financing?  I want to make sure that I am looking at the numbers correctly before determining cash flow and cash on cash return.

4. Advice would be appreciated.  This deal doesn't look good right now but may be a starting point in the negotiation.

[Steve Vaughan]

@Joe Conklin- a 'balloon' refers to the loan balance needing to be paid in full.  Essentially a 1-yr balloon for you will mean a payment of $140,000 - $14,000 = $126,000 due in 12 months.  It will be a little lower with principle buydown over 12 pmts but you get the picture.  In case your lender requires 12 months of seasoning before the refi, be sure and get a 60-day extension or ask for 14 months up front.  Pretty short balloon in my opinion.

Closing costs in my area run about 2% of purchase price.  Some are buyer-paid, some seller. Depends on area customs.

Your instrument of seller-financing is hugely important.  DO NOT DO A LAND CONTRACT.  Structure it where you get title to the property on day 1.  Here it is a Note and Deed of Trust (mortgage). If not getting title anyway, I'd put down less up front (like 2-3% total) for an exclusive option to buy.  That's about all the protection you have anyway with a Land Contract.