How Much is Seller Financing Worth?
So I have come across a "deal" in which seller financing is an option. However, I am not sure about the numbers, and would like to post it to the BP community for some guidance. The seller is straight forward, and wants to make money, but I am not sure which of us needs to budge. There are 2 duplexes for sale and I have inquired about purchasing both in order to start my portfolio as well as provide the current owner to move on to retirement. One of the properties was purchased prior to 2008, and the other was purchased in 2010 as a foreclosure. I will do my best to set the stage and present the numbers as accurately as I know them...
I am located in northeastern connecticut where things are still considered a buyers market.
I would rate the neighborhood as a rising c
The properties (as described by the owner) are turn key with new everything besides one furnace and water heater. (I personally think that he has over rehabbed both)
Both are fully occupied with month to month rentals
Both properties have a combined gross rental income of $3,200
Tenants pay heat and electric and are on separate meters.
Landlord pays water and sewer
The current owner is looking for a minimum of $245,000 for both properties, before considering seller financing. I said that I could do 1,000 monthly payments for 245 months and he was hoping for more. Either additional down payment or increased monthly payment. My thought is this...
The 50% rule, which I conservatively changed to the 60% rule (including property management) leaves me with $1,280 for monthly payments, which doesn't leave me with much room for an increased monthly payment while maintaining a positive cash flow.
The 2% rule puts the value of this property @ 160,000 (I would pay a little more for the newer appliances, kitchens, roofs, furnaces etc.). The mortgage calculator tells me that in order to have the total payments equal $245,000, the selling price for conventional financing on a 20 year 3.5% loan would be $176,000. I am comfortable paying that for the seller financing and the fact that I will own the property outright in 20 years, but would not be comfortable doing much more.
This seems like a fair deal for both of us in my opinion, but I am a newbie and would love to hear what advice you all have for me.
Thanks,
Jacob