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Aaron Gobert
  • Investor
  • Houston, TX
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Please review my creative financing structure for my first SFR

Aaron Gobert
  • Investor
  • Houston, TX
Posted Jan 4 2017, 10:22

Hello BP! I am working on structuring my first deal here in the Houston market and could use some advice on the way I'm trying to structure the deal. It's a pretty interesting scenario especially for my first deal. 

Background

- The SFR is owned by an individual who wants to move out of state in approximately 15 months when she retires (original owner of the home).

- She is tired of being a homeowner and just wants to lease something for the 15 months, that way when she is ready to move she doesn't have to go through the selling process. 

- I offered to buy the house and lease it back to her so she doesn't have to move twice. 

- The owner mentioned that she is worried about the tax implications of selling the house

- She has a couple of years left on the mortgage but I'm not sure what amount at the time of this writing.  

- After the 15 months, I will fix it up and rent it out to new tenants. 

Deal Structure

I was originally going to use a private lenders self-directed IRA to pay for the deal but after the owner mentioned she is worried about tax implications, I'm leaning towards discussing the option of owner financing.

My thought is that I will get a loan for the remainder of the mortgage + $5,000 for the seller. I will than use seller financing for the remaining $85,000 at ~6% interest rate. I'm thinking I'll finance it for 5 years amortized over 30 years or possibly interest only payments (thoughts?). Also I would do no due on sale clause, no penalty for early payoff and no balloon payment. 

The Numbers

Offer Price - $100,000

Current Market Value - $125,000

Future Repairs - $11,000

ARV - $151,000

Rents - $1450/mo

Mortgage Amount - ? (For this example we will say $10,000)

Loan 1 - Mortgage + $5,000 = $15,000

Loan 2 (Seller Finance) - $85,000 @ 6% int rate, 5 yrs amortized

This is my first RE deal and based on things I've read, this seems to be the most logical way to structure the deal. It's interesting because she would be selling me the house with seller financing and then I would lease it back to her for a period of time. For the pro's of seller financing, I would really love your input...

Questions

- Is this a good structure for this deal?

- What do you think of interest only payments to the seller vs P+I?

Thank you!

Aaron

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