Cash flow negative on a seller carry deal with no interest

Rental Property Investor · Malvern, PA · Member since 2016 · 1k+ posts · 934 votes

1w

Is your financing a mortgage or contract for deed? The latter has more risk for you in a default.

How do you buy a property you write is worth $475k, do $20k in repairs and end up with $600k value? Forced value? That's a nice improvement and I question if the property is really worth $475 now for you to get a 6:1 improvement ratio. It may be worth more than you think.

Are you including taxes, insurance, maintenance, vacancy and other expenses in your 7-year plan?

You have to work it out with your wife. There's a story there you haven't shared.

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Brett Chandler
OP
Investor · Gresham, OR · Member since 2019 · 38 posts · 15 votes
1w
@James Mc Ree Thanks for the response! Her lawyer was going to work up the contract, but sounds like I need to do some more research to figure out how to structure the contract.
I was estimating the future value at 5% appreciation 🤞🏼. I’m new to estimating costs, but I did factor taxes, insurance, maintenance, and vacancy as well as the income tax benefits and rent increases over the next 7 years.
Everything is fine with the Mrs, she’s just not in love with the house and would rather make something cute than win the money game, which has honestly kept us out of trouble over the years.
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Reuben Ilyich

Member since 2026 · 1 post · 0 votes

1w

I’d rerun it at 3% appreciation. I wouldn’t want seven years of 5% growth to be what makes the deal work.

I’d still call it negative cash flow, though. At 0% interest, that $5k loan payment is paying down principal. That’s valuable. But with $2k coming in, you’re covering $3k a month before taxes, insurance, repairs and vacancy. Building equity helps your net worth; you still need to comfortably afford those payments.

The rent is worth looking at. Check comparable rentals and what the lease and local rules allow before counting on increases. A gradual adjustment could help, but I’d run the numbers at the current rent first.

Get your own real estate attorney to review the title transfer and seller-financing documents, including what happens if the seller passes away before the loan is paid off.

And I’d ask your wife whether it’s the monthly commitment or this particular house that bothers her. Would she feel differently about putting that money into a place she wanted to live in? That’s worth understanding before committing to the house next door.

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Ashish AcharyaBusiness Member

CPA, CFP®, PFS · FL · Member since 2017 · 5k+ posts · 3k+ votes

1w

Brett, the structure is attractive on the surface, but I’d slow down on one part in particular: “0% interest” does not necessarily mean the IRS treats the transaction as having zero interest.

If you buy for $420K, put nothing down, and pay $5K/month for seven years, the economics are obviously compelling compared with conventional financing. But seller-financed real estate with inadequate stated interest can trigger the unstated/imputed-interest rules, where part of what everyone calls principal is treated as interest for federal tax purposes. The seller may have ordinary interest income even though the note says 0%.

So I’d have both sides’ CPAs review the note before signing it, especially because there may also be installment-sale planning available for the seller. IRS guidance generally allows gain on qualifying installment sales to be recognized as principal payments are received, but interest is separately reported as ordinary income.

On your side, I’d also stop thinking of the entire $5K payment as “equity creation.” Economically, yes, you’re paying down the obligation quickly, but I’d still underwrite the property as a rental: $2K rent against a $5K payment means you’re intentionally contributing roughly $3K/month before taxes, insurance, repairs, vacancy, and the initial $20K rehab. You need to be comfortable carrying that even if something changes with your W-2 income.

I’d also get an attorney to document the deed, note, security instrument, default provisions, insurance, taxes, prepayment language, and what happens if either party dies during the seven-year term. With a neighbor relationship and a recently widowed seller, I’d want the legal terms to be especially clear so nobody has a different memory of the deal later.

From the tax side, once you own the rental, depreciation still matters, and depending on the property and your broader facts, cost segregation may be worth evaluating. If your wife actually becomes a co-owner or partner in the investment rather than simply supporting the decision, make sure the ownership structure is chosen intentionally because a multi-member entity taxed as a partnership can create a separate partnership return and K-1s.

The price and financing are interesting. I’d just make sure the after-tax seller-finance structure and the negative carry work as well as the headline “0% financing” does.

Feel free to DM me, I’d be happy to send over a few resources that might help with rental underwriting, seller-financing tax considerations, and downside planning.

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Jay HinrichsBusiness Member

Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes

1w

ONly thing I see here is the imputed interest for the seller has no effect on the borrower also this is no big deal .. you simply do a mortgage / or deed of trust with the corresponding note.. Simple.. You open escrow review and understand the title commitment.. lawyer or escrow company will make sure taxs are paid at closing and any other seller obligations.. So that part of it is just standard real estate.

I have sold many of my properties I ended up taking back POST GFC with zero % financing I usually got some downpayment though. For a seller this is Rock solid paper the buyers NEVER defaulted as they were earning so much equity each month..

As if its a deal or not thats your family decision if you can afford the negative cash flow just look at it like seller is not only financing the house but the downpayment with zero % and 7 years goes very fast and owning it out right and if your not like me at the end of my RE adventure you will enjoy many years of massive cash flow and have a paid for asset.. Banks love to see those. Just my thoughts If I could find a deal like this I would do it personally.

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Shiloh LundahlPro Member

Rental Property Investor · Gilbert, AZ · Member since 2016 · 3k+ posts · 4k+ votes

1w

@Brett Chandler here is an idea. You take over the house at $420,000 then you put $20,000 into the house. You then sell the house for $500,000 with 10% down on seller financing at 7% on a 30 year mortgage. Their monthly payment is roughly $3000 a month plus taxes and insurance. You take the $50,000 and you divide that by $2,000 and that gives you 25 months or about 2 years. You pay the previous owners the $5,000 monthly payment ($3,000 from his mortgage and $2,000 from the down payment that he gave you). After 25 months you now owe $295,000. You then go and get a 25 year mortgage at let's say 7% and your payments are now $2000 a month. You now cash flow $1000 a month until the buyer pays you off.

I am not including any tax implications and I know that you would lose the 0% interest. I'm just sharing a concept.

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Ken M.

Investor · Get yourself trained before doing something inadvisable. · Member since 2024 · 3k+ posts · 1k+ votes

1w

Quote from @Brett Chandler:

Anyone out there ever done a seller carry deal with no down payment and no interest? I was approached by my neighbor about an off market deal. She owns a rental property and we share a lot line. Her husband passed away unfortunately so she’s trying to offload the rental while she can still file jointly.

It’s not a great benefit to own the house, but it does solve some property access issues for us. More importantly, the math seems like a no-brainer. It’s worth 475K, needs $20K in repairs. We agreed on terms of $420K for the purchase price with zero down and zero interest. Payment will be $5K/mo for 7 years. Long term tenant is paying under market rents at $2K/mo. It’s obviously cash flow negative, but the full payment (that my W2 income can cover) would go straight to principal. I figure we would be out of pocket $260K over the next 7 years and have a paid for property worth $600K+. We are structuring the deal with no penalty for pre-payment for all the ‘leverage’ pushers out there ;). Never done a seller carry deal. Anything I’m missing here?

To add a layer, my wife doesn’t want the house. I’ll choose her over an amazing deal every day of the week, but I want to know what the experienced folks out there think of the deal. Bonus points for anyone who knows how to help me convince my wife that it’s a good deal. Or wants to partner up - on the deal, not as a wife…

I did not catch that it was "free and clear" and had been accounted for in his/her taxes. So make sure that's taken care of.

What is your plan if there is a real estate correction and the property actually drops in value?

Since we don't know what city you are talking about, we can't give advice on market trends but can only guess.

Whatever you do, if you choose to buy it:

1. Have an official appraisal done and hang onto it, so you can address capital gain in the future, you'll have a basis

2. Get a title report and make sure there aren't taxes due or some strange lien

3. Since it appears to be connected to a probate, make sure it is cleared to sell

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Alex S.

Investor · Washington, US · Member since 2021 · 68 posts · 13 votes

1w

With a 0% seller carry the honest comparison is the present value of that payment stream at market rates: discount the payments at whatever a bank would charge you today, and that PV is your real purchase price, usually well under the sticker number. Then set the negative cash flow against monthly principal paydown, because if you are feeding it $300 a month while knocking $900 off the balance you are not losing money, you are funding equity on a schedule. The number that will actually land with your wife is months of reserves at that burn rate plus what the payment looks like at year 3 rents, since negative cash flow only works if you can clearly outlast it.

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David Krulac

Mechanicsburg, PA · Member since 2013 · 3k+ posts · 2k+ votes

1w

@Brett Chandler If it were me....

1. I'm a volume real estate buyer, I often don't even tell her I bought a property, one year I bought 39 properties. I don't think I even told her about any of them. The house we live in now I bought 6 years before my wife ever saw the house or knew anything about it even the purchase.
2. I would have structured the no interest, no down payment mortgage for the same 7 years or longer with a baloon payment so that at the very least it would break even every month and you wouldn't have to reach in your pocket to cover the negative every month. Then re-finance in 7 years and pay off the seller in full at that time. the seller is still waiting 7 years to get paid and there is no negative cash flow.
3. I sold a rental property recenty to the tenant for zero down and a low market interest, not quite zero. The current IRS imputed interest for mid term up to 9 years is 3.5% interst.

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Matthew Walker

Member since 2026 · 7 posts · 2 votes

1w

Running your numbers:

$5K a month for 7 years is $420K total, matching your $420K price exactly, so the 0% checks out. Against the $2K a month rent, about $168K over 7 years, net cash out is about $252K netting rent against payments, or about $272K once the $20K in repairs is added. Your $260K estimate sits right between those, so it's in range depending on whether repairs are counted.

What you get: a property appraised today at $475K, owned free and clear, bought about 11.6% under that appraisal.

Worth naming plainly: the opportunity cost. You're carrying roughly $3K a month of negative cash flow for 7 years while your W2 covers it, money unavailable for anything else meanwhile. If your wife's hesitation is really about that ongoing drag rather than deal quality, the numbers say the drag is real, about $3K a month, not imagined.

I don't own doors yet myself, so weight this as arithmetic rather than experience.

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Aaron WeikleBusiness Member

Member since 2026 · 76 posts · 23 votes

1w

The imputed interest point Ashish raised is the one to take seriously before anything else. IRC Section 1274 and the AFR rules mean the IRS can re characterize a chunk of each 5K payment as interest income to the seller, regardless of what the note says. Check the current AFR which the IRS publishes it monthly and have the note drafted to at least state that rate, or both sides' CPAs will be cleaning up a mess at tax time. The seller's installment sale treatment on Form 6252 gets complicated fast when imputed interest is in play. On your side, the tax picture is actually decent. You'll depreciate the structure over 27.5 years under MACRS on Schedule E, and the 20K rehab may include components you can accelerate with a cost segregation study and claim on Form 4562. If you're a real estate professional or can qualify as actively participating, some of that paper loss offsets W-2 income. Worth modeling before closing. The legal doc that matters most would be to make sure you're getting a deed of trust which is standard in Oregon, not a contract for deed. With a contract for deed, you don't hold title during the payment period, which creates real exposure if the seller's estate gets complicated. Get your own attorney to review the note, security instrument, and especially the death/incapacity clause. Her attorney represents her. The carry is 3K/month minimum before insurance, taxes, maintenance, and vacancy. Run it at current rent with no appreciation and make sure the W-2 can absorb that for 84 months without stress. If yes, the deal structure itself is genuinely attractive.

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Gregory AcsPro Member

Lender · MD · Member since 2025 · 162 posts · 62 votes

1w

Brett, that’s definitely an interesting structure. Zero down and zero interest aren’t terms you come across very often, so I’d be looking beyond the monthly cash flow and evaluating the overall investment. I’d want to confirm the property’s true market value, expected repair costs, taxes, insurance, maintenance, and what your exit options look like if your plans change before the seven years are up.

I’d also make sure the seller-financing documents are drafted by an experienced real estate attorney so both parties are protected and everything is clearly documented. If the numbers still make sense after stress-testing the deal, it could be a unique opportunity.

If you’d like to compare this seller-financing structure with more traditional financing options or run through the numbers from a lending perspective, I’d be happy to help.

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Igor Ganapolsky

Coral Springs, FL · Member since 2018 · 464 posts · 95 votes

6d

i buy at florida tax deed auctions where everything's all cash - no financing at all. so this seller carry thing is a different world. the flexibility you've got with an off-market deal is actually pretty rare. just make sure that 3k/month negative carry doesn't stress you out over 7 years.

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Don KonipolBusiness Member

Investor · The Woodlands TX / Avon, CT · Member since 2009 · 6k+ posts · 10k+ votes

6d

You’ve gotten numerous GREAT responses. That being said, here’s what I would do

Try to negotiate a structure like one of these three. -

1. 0% interest, 0 down payment, 12 years fully amortized. - payments $2,917 / month
2. 0% interest, 0 down payment, 20 year amortization, balloon payment in 7 years - payments $1,750/month
3. 2.25% interest, 0 down payment, 20 year fully amortized - payments $2,175 / month

Then sell the property to me at a small markup!

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Jason MalabuteBusiness Member

Accountant · Los Angeles, CA · Member since 2016 · 2k+ posts · 900 votes

6d

A few things worth flagging before you sign anything. A zero percent note is not really zero percent in the eyes of the IRS, since the imputed interest rules can treat a chunk of what you are calling principal as interest, which can leave her reporting ordinary interest income she was not expecting, so both of you should have your CPAs review the note before it gets drafted, and there may also be installment sale planning available to her that changes how her gain is spread out. On the deal itself, be careful not to treat the full 5k as equity you are building, because with 2k coming in from the tenant you are roughly 3k a month out of pocket before taxes, insurance, repairs and vacancy, plus the 20k of work up front. I would also get a real estate attorney to paper the deed, note, security instrument, default terms, insurance requirements, prepayment language, and what happens if either of you passes away during the seven years. How this actually lands depends on your specific facts, so run it by your own CPA before you commit.

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Diana KhanPro Member

Attorney · 10451 Mill Run Cir #755 Owings Mills, MD 21117 · Member since 2024 · 374 posts · 144 votes

6d

Quote from @Brett Chandler:

Anyone out there ever done a seller carry deal with no down payment and no interest? I was approached by my neighbor about an off market deal. She owns a rental property and we share a lot line. Her husband passed away unfortunately so she’s trying to offload the rental while she can still file jointly.

It’s not a great benefit to own the house, but it does solve some property access issues for us. More importantly, the math seems like a no-brainer. It’s worth 475K, needs $20K in repairs. We agreed on terms of $420K for the purchase price with zero down and zero interest. Payment will be $5K/mo for 7 years. Long term tenant is paying under market rents at $2K/mo. It’s obviously cash flow negative, but the full payment (that my W2 income can cover) would go straight to principal. I figure we would be out of pocket $260K over the next 7 years and have a paid for property worth $600K+. We are structuring the deal with no penalty for pre-payment for all the ‘leverage’ pushers out there ;). Never done a seller carry deal. Anything I’m missing here?

To add a layer, my wife doesn’t want the house. I’ll choose her over an amazing deal every day of the week, but I want to know what the experienced folks out there think of the deal. Bonus points for anyone who knows how to help me convince my wife that it’s a good deal. Or wants to partner up - on the deal, not as a wife…

@Brett Chandler, the part that caught my attention was actually your comment about this solving property access issues. I’ve seen neighboring properties work fine for years because everyone understands who can use what, and then problems start once one of the properties changes hands.

If that access is important to you, I would not leave it as something that simply works because you own both properties. I would want to understand exactly what the deed, survey, and title records say and whether anything needs to be formally documented or recorded as part of the closing. That way, if you ever sell one property separately, the access issue does not come right back.

I’d be glad to stay connected, @Brett Chandler. Seller financing can get most of the attention in a deal like this, but sometimes the property issue sitting next door is the part worth protecting the most.

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Gregory AcsPro Member

Lender · MD · Member since 2025 · 162 posts · 62 votes

6d

Brett, those seller-financing terms are definitely unique, so I'd be looking at the entire picture rather than just the monthly cash flow. Zero down and zero interest are attractive, but I'd also want to verify the property's value, confirm the rehab budget, account for taxes, insurance, maintenance, and make sure the payment schedule fits your overall financial goals.

I'd also recommend having a real estate attorney structure and review the seller-financing documents to make sure both you and the seller are protected. If the numbers still work after stress-testing everything, it could be a great opportunity.

If you'd like to compare this seller-carry structure with traditional financing or talk through how different loan options might affect your long-term strategy, I'd be happy to help.

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Cash flow negative on a seller carry deal with no interest

Cash flow negative on a seller carry deal with no interest

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