Owner financed $1,000,000 at 3-4% over 15-20 years.
Seems like a no brainer. Let me know your thoughts please.
Bud,
I own about 1,000 apartment units (and have acquired way more than that - I sold a significant portion of my portfolio over the years). Some of my best deals are owner financed deals.
To answer your question...without any other information, I will have to make some assumptions. I've been investing since 1999 and actually made more money during the Great Recession of 2008-2009 because I am very conservative with my numbers...so I will make some conversative assumptions.
Assuming, this a C area, I would assume your expense ratio is 50%. Expense ratio is the operating expenses as a percentage (or ratio) of your gross collected rents.
Also, you gave a range of interest rate and range of amortization period. Let's assume the worst case - 4% interest and 15-yr amo. That means your monthly P&I payment is $7,396.87 or $88,762.44/yr
If you gross $10,600/mo that's $127,200/yr
x (1- 50% expense ratio)
= $63,600/yr Net operating income (after all the expenses like taxes, insurance, repairs, replacement reserves, vacancies, etc)
You deduct your mortgage payment and you get a NEGATIVE CASFHLOW property (-$25,162.44/yr)
So, the answer: NO, it's not a GOOD deal and I wouldn't do it.
Vienna, VA · Member since 2015 · 41 posts · 15 votes
5y
@Bud Gaffney
I used poor choice of words saying that it's always a bad deal if seller desperate. Such cases are often good deals —- WHEN THEY SELL AT A DEEP DISCOUNT. That's not the case here. Your NOI is very slim to nonexistent. There's all sorts of red flags for me on this one.
I’m curious what ever happened since this was about 18 months ago or so.