Closing a lead. Owner financing offer on the table.

[Nate Williams]

I found the worst house on the best block in a local historic neighborhood. Lots of old houses valuing over 500k and up to 1M (local house price in my market is 167k). I eventually tracked down the lady who owns it, gave her a call, and we had a friendly conversation about her house and real estate deals of her past. She said that she knows that house is worth 300-400k (and she's right), but she told me to bring her a price that would work for me, and she would be willing to owner finance if we agreed on a price-she has done owner financing for other buys in past years. The house needs about 50k worth of work which I could myself. 100k if I were to sub it out.

My question is, how do I navigate this? I know little about owner financing, and to be honest, if I take on a 300k house payment (or even 250k for that matter), I would struggle to make the payment if I had a prolonged vacancy due to my current W2 income. 

My current options: rent out the current 4 bed 2 bath house that I own and live in so I could move into the 300k house and remodel while I live in it. Or I could buy the 300k house, stay in the house I'm in, get the 300k house remodeled asap and get a renter in asap. I have 35k in the bank currently, so I also could simply be over my head going for a deal this expensive. It is just a once in a lifetime find in a such an expensive neighborhood.

[Nicholas L.]

@Nate Williams

the terms of seller finance are whatever you agree to with the seller.  so, it could be ( am throwing out random numbers) a purchase price of $350K with $10K down, and then 30-year amortization at 6.5% with a balloon payment due in 5 years.  or whatever you negotiate.  in what I just laid out, you'd make monthly payments to the seller just like you would to a bank for 5 years, and then the remaining principal balance of the loan would be due, at which time presumably you would refinance the house into a commercial mortgage and use the proceeds to pay off the seller.  if you need assistance setting this up talk to some local professionals.

to your point you, should certainly not take on a payment you can't afford - and only you know what that is.  you would need to make monthly payments to the seller during the rehab, just like to any other lender, and then if it were a rental, you would want the rent to cover the payments plus all other expenses.

you'd also need to figure out how to pay for the rehab - either out of pocket, or finance it somehow.  not recommending anything here.  and - if 35K is everything you've got - savings, emergency fund, money for real estate... that is not a huge cushion.  but, we only know what you posted.

hope this helps