Norfolk, VA · Member since 2013 · 55 posts · 4 votes
Hey BP, I hope all is well. I'm wanted to get some opinions about a seller financing deal in about to land here in Norfolk, VA. I have been thinking up ways to not use my cash or maybe just a portion of it on this deal.
Here are the details
After Repair Value: $80,000
Repairs: $10,000 - $15,000
Purchase Price: $20,000
Down Payment: $10,000
Promissory Note: $416.67 for 24 months (the other 10k for the purchase)
Payments are deferred 6 months. I have time to rehab it before I start paying her
Real Estate Broker · Northwest Indiana, IN · Member since 2011 · 2k+ posts · 2k+ votes
10y
As far as the loan goes with the investor for $10k: (a) You can not have a zero interest loan. There is a required minimal interest rate by the IRS which for a short term loan is around 0.65%. (b) Why would the loan maker/investor agree to do this deal for free in the first place? (Probably want to double check that)
When you defer, are you deferring to the maturity or will you have to catch up the deferment? Since you are deferring 6 months of payments you will have $2,500 to deal with. That could be spread on top of the remaining 18 months of payments or simply balloon at the end. If you have to amortize the whole loan into only 18 payments that payment will rise by $139+.
As far as the overall capital stack, not sure this really works for you. You will have just debt service north of $567 - assuming:
$10k Down - 0% $10k Purchase from loan investor - $416.67(+) monthly $10k rehab at 10% $84+ monthly $5k rehab at 16% $67+ monthly Total Debt Service = $567 (the "+" is present because those are interest only payments and we don't know the terms of repayment to accommodate for principal payment)
You have not accounted for taxes, insurance and vacancy. If taxes and insurance combined are another $200 plus you still have to deal with the principal and deferment issues above you are looking at another $400 or so. You will essentially be in the red.
You can refinance all that expensive debt away and bring this back inline to work with the rental payment. That will be your best bet if you want to hold on to it.