Owner Financed Deal - is it worth it?

[Chris Seveney]

Here is a 10,000 foot view of a deal that was brought to me. All of the information pertaining to income and expenses needs to be verified. The homeowner wants to sell due to age and health issues as they were also self managing the properties.

Three buildings for a sale price of $165,000 in a northern region of the US

Ten units in total with rental income of $6,125

Expenses are high due to utilities (oil heating) by owner. 

The homeowner will owner finance and hold the second note on the property (20%) for five years (amortized over 5 years) at 4%. So basically there is no out of pocket.

After factoring in utilities, an 8% vacancy, 10% CAPEX, 10% repairs and 10% PM the cash flow is negative $150. The majority of this is due to the $600/monthly payment paying off the second loan and the other big nut is the utilities which are $1500 a month.

The buildings are also all over 80 years old.

Even though this is owner financed and no money in it, I am going back and forth if this ais a good deal because if you figure you want to get $100/key this would equate to $12,000 a year for five years  = $60,000. Subtract to that the 20% down I would have paid which is $33k and it returns a positve $27k.

Based on the owner finance scenario, I would have the $32k paid off minus the $150 I am paying per month which equates to $9,000 so a total of $23k to the good.

While I am not at where I would be with $100/door, it corresponds closer to $90/door.

Thoughts?