Need help with seller financing

[Cesar Perez]

Hi all,

I've been lurking on these forums for quite some time - today is my first post. I could use all of your help. I recently came across a four family property and seller wants $725k. I want to house-hack one of the units. The rent roll is $5,800/month. Expenses are approximately $1,900/month (not including P&I, prop mgmt, capex, vacancy, repairs/maintenance, and snow/lawn care). I could get traditional financing through a bank with the following terms: 30 year fixed at 3.2% APR, 20% downpayment. Based on traditional financing, I made an offer to purchase at $690k, which the seller has rejected. I don't think the property is worth much more than 700k based on my analysis, so I don't want to overpay just to get the property. However, the seller mentioned that she would be open to carrying a first or second mortgage on the property and I am wondering if there is win-win scenario for both parties using seller financing. I've met with the seller and she was clear that, if we do seller financing, she wants a minimum of 5% interest rate. Also, I don't believe she will accept less than $700k nor less than 10% downpayment since she will have about $50k in costs associated with the sale. I think she would be open to a 30yr amortization schedule, but she would want to recoup her money before 30 years is up. So maybe some type of balloon payment structure? She is more inclined to a variable rate tied to the fed prime rate, but I think would be open to a rate fixed at 5%. She also said that she could do an interest-only loan structure, as well.

Thoughts/guidance? Any help would be appreciated.

-Cesar

[Nathan Gesner]

Yes, you can amortize the loan for 30 years but have a balloon payment required at ten years. At that point, you would refinance with a traditional lender and use that loan to pay her the remaining balance.

I don't think it's a good deal. If you had a loan of $600,000 at 5%, your payment would be $3,221. According to the monthly rent income you shared, that only leaves about $2,600. You said expenses are $1,900 a month and that does NOT include vacancy, maintenance, etc.

I would use the BP calculator to crunch the numbers and seriously consider whether this is worth looking into.