Owner carry. Seeking advice

7 Replies

I m looking to purchase a 3 bed 1 bath rent ready with recent updates in the Village area of oklahoma city. Arv is about 85k. Owner is asking 90k. I offered 15k down and $800 / month for 8 yrs. House would bring 1k in rent. Taxes and insurance are 1200 per year. Thank you for the input. 

8 years is a long time to carry a loosing property. You're paying more than what it's worth and you don't have cash flow. I personally would do the deal because I could cover the cost of repairs with my job and I'd have a paid off house in 8 years or less. If you can too, go for it. If not, you will get into financial trouble.

Next time give him 2 options. One with a higher price and lower monthly payments. Other one is a lower price with higher monthly payments. It gives them the feeling of being in charge.

I think your offer is too high based on the rent, FMV, and expenses. You didn't calculate for all of them and the bottom lines is the property will cost you money every month. As the previous poster stated, if you can afford it and are willing to lose money every month for eight years to end up with an asset that is free and clear then do your deal. I have one negative cash flow property but my situation is different in that if I never prepay the mortgage it will be free and clear in 5 years plus I picked it up for 20% under FMV. If you are paying FMV or higher for the property and getting a negative cash flow every month I would reconsider. My .02

@Shanequa J. @John Thedford

thanks for the input. What's exited me about this deal is the fact that the owner is willing to carry the note tax free. So while I might cash flow. My entire payment would go towords principle pay down. The house is recently updates inside with sewer line, water tank, Roof is 5 years old... I figured 900 PITI, would leave me with $150 a month for repairs. I don't. I don't need the cash flow for now if I get the house free and clear in 8 yrs. Thanks for the input.

I plugged some numbers into a mortgage app, I frequently use on my phone.  If I apply a 4.25% interest rate over 8 years with 15k down on 90k purchase, you would pay13,601 dollars in interest.  @ 5% it would be a little over 16000.  Depending on the financing you might have got, you would be getting about $1700-2000 a year when it is all said in done.

I then used a property evaluator app on my phone very similar to the one here on BP building in things like vacancy rate, taxes, insurance, CAP Ex, property management, and general maintenance and you would lose $3364 per year on the property. This is not making up for the no interest rate loan.

Before you say, I don't need property management or other assumptions...you do not know what will happen over 8 years.  I was diagnosed with a life changing disease two years ago that would have have put me into a major bind if I did this deal prior to that. What if you lose your job, how would you cover the losing cashflow on the property?  Let me be clear, only you know your situation, but I do want to call out some what if's to make sure you have an exit plan if needed.

Now, if I look at this same deal on a conventional loan over 30 years at 4.25% interest.  The property would cashflow $166 per month or $1990 annually.  Take the 1990 X 8 years = 15,920.  A little more than you would make taking the no interest loan without the risk of being short on cash.

Again, only you can decide what is right for you, but I hope these quick calculations are helpful to you.

One final thought and I do not have the answer, Can you really get $1000 a month for a 3/1?  I don't own any, but have looked at 3/2's in the village area.  You didn't mention square footage either and that would be a big factor, but my gut feeling is saying that number could be high.

@Matt Miller

 Thank you so much for the input. You really put things in perspective for me. You are spot on on the life events and such...I do have access to financing at 5.5%. I will be going back to the seller with an offer using the 2% rule.