Analyze This Bond For Deed Deal With Me

[Courtney Fricke]

Hey Y'all,

Have this bond for deed deal on the table that I'm analyzing. I like the terms and this is my first owner financed deal as well as my first potential rental property so I don't want those factors to cloud my judgement. Would appreciate any thoughts or input. Thanks!

Property(s): Two separate 1 bed, 1 bath cottage style houses on four shared lots in a desirable neighborhood for rentals. One is slightly larger in size than the other with an added office room. Non-flood zone. Central to town. Has two long term tenants in there for the last 12, 14 years. Decent condition. 

Owner Financing Terms: 

$120K Purchase Price
$3K Down
$117K Balance - Paid Over 25 Years
$400/month note
0% Interest
No Pre-Payment Penalty - Actually 10% Deduction of Balance to Pay Off at 15years

Unit A:
Current Rent - $650

Monthly Expenses: 
Note: 200
Taxes: 28.71
Escrow Services: 35
Insurance: 100
Property Management- 10%: 65
Maintenance - 12%: 78
Vacancy - 8%: 52
Garbage: 13

Total monthly expenses day 1: 571.71
-65 while self-managed = 506.71


Unit A Current Cashflow: 143.29

Notes: 
Market Rents - Around 700-750
Considering making tenants pay for garbage
Insurance may go up as I have yet to review the policy
Escrow services may be $35 for each property or $35 for both

Unit B: 
Current Rent - $475

Monthly Expenses:

Note: 200
Taxes: 28.71
Escrow Services: 35
Insurance: 100
Property Management- 10%: 47.50
Maintenance - 12%: 57
Vacancy - 8%: 38
Garbage: 13

Total monthly expenses day 1: 519.21
-47.50 while self-managed = 471.71


Unit B Current Cashflow: 3.29

Notes:
Market Rents - Around 650-675
Considering making tenants pay for garbage
Insurance may go up as I have yet to review the policy
Escrow services may be $35 for each property or $35 for both

Thoughts? Would you do this deal?

[Robert Leonard]

Hello @Courtney Fricke, yes, bond for deed is the same as what's called a land contract in other states.  You should be able to cut that insurance cost.  All properties, everywhere, are in a flood zone.  What you mean is the property is in flood zone X (least likely to flood, flood insurance not required).

My concerns are:

1. What type of construction are the structures?  (Brick, wood frame, cinder block, etc.?)

2. What is the condition of the big ticket items? (roof, mechanicals, exterior siding and fascia)

3. Get the properties inspected.  I always recommend it for your first few purchases.  You will learn what to look for and you can consider it tuition.  With experience, you won't need to accept that expense on every purchase, but when you are first starting, it is worth every dollar.  

A key point here; don't let the inspection kill the deal!  Unless they find something major that the seller is unwilling to negotiate.  The inspector will find and make note of every little imperfection.  It's normal that they will have a laundry list of nit picky things.  You are getting the inspection to find the big things that you don't know to recognize yet.  That's how you can avoid most unpleasant surprises that come from learning the hard way.