Owner Financed Deal- Worth It? And Other Q's

3 Replies

The numbers:
2 bed 1 bath in a 4 unit building
Asking price: 90k
Taxes:~4k
Monthly Assessment:$50
Can be rented for: $1000 a month

This will be the first deal I would be doing as an owner financed deal- actually this would be my first deal ever.

I have $20k in funds for the down payment, but am curious as to how the rest of the deal will be structured.

Can I have the contract structured so the repayment is in 5 years or less?
What will be my interest rate, assuming great credit?
Will the title be transferred over to my name upon closing?
Will there even be a closing?
Do the numbers make sense, is this a good deal?
Any input is appreciated!

From what you have posted, I would guess your loan payment would be maybe in the 450-500 range figuring only principle, interest, and insurance.  The taxes and assessment are about 400, if there are any other fees or management costs it may be at best a break-even deal, because I see 850-900 in expenses right now without digging. 

If the deal was to be paid in 5 years, would probably have a loss each month.

  • Can I have the contract structured so the repayment is in 5 years or less? 

Yes.  The negotiation is between you and the Seller for terms.

  • What will be my interest rate, assuming great credit? 

This is a question for the Seller, same as above.

  • Will the title be transferred over to my name upon closing? 

This is a question for the Seller as well BUT if you mortgage (or deed of trust) the property, title will vest in your name.  If the Seller does an installment contract such as a Land Contract or Contract for Deed then title stays vested with the Seller until the contract obligation is fulfilled.  IMO, it is in your best interest to request a mortgage/deed of trust and not accept the installment contract.

  • Will there even be a closing? 

If you use a mortgage/deed of trust, then Yes.  A normal real estate closing will need to take place.  If you opt for an installment contract, there is a closing but it is not a typical real estate closing, looks more like you simply signing a lease/rental agreement.  

  • Do the numbers make sense, is this a good deal? 

My concern is ensuring we (I) am on the same page with what is actually happening here.  The answers above are based on reading your post as if you are the Buyer who is receiving Seller finance.  

The subject property as described above sounds like a Condominium (1 of the 4 units in a Condo building). This roughly sounds like a 4-plex conversation turning the property into a Condo.  When or how recently it was converted is important to know.  It could be the way it is written, but the project sort of only sounds like this building opposed to this building being one of many in a large condo project.  Small condo projects can present barriers to conventional finance based on many ideas.  It may be a good idea to check on the capacity for this property to hold conventional debt for your sake now and into the future (for resale or refinance).  

The taxes seem high for a $90k asset at $4k per year.  

One other obvious question, why are you using Seller Finance opposed to conventional finance?  You have a good down payment and you have per the post good credit.  A conventional loan (a loan from a bank or institutional lender) would more than likely hold a better set of terms including interest rate for you.

Much of whether this is a good deal or not will actually depend on the terms the Seller demands for the finance and whether or not they will allow you to purchase it with alternate finance, like conventional. At this stage, it could be a good deal or it could be a lousy deal still not all the details are present in the post. The two elephants in the room are what are the terms of the Seller's finance package and what is the FMV of the property.

I would not consider this a good deal.  I see about $9,000 in expenses for the year or only about $3,000 in income.  With a purchase price of $90,000 that is 3.3%.  Your cost of money on an owner carry will probably be 5%-7%.

Look elsewhere.

Bill

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