Owner financing plan. What would you ask for?

[Gytenis B.]

Hello Colleague,

I have a questiona bout the home owner finanting.

A bit of background. I am a young working professional. Spending approximately 45% of my income and saying the rest for real estate investments.

Because of my legal status I am not eligible to get bank loan on the house at the moment and it will be about a year more until I will be able to do that. So I am working the ways how to get my first house now to live and then to rent.

I found a house being sold by owner and proposed the owner financing. Owner agrees with the following conditions:

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SALE PRICE: $287,000

Down Payment: $ 20,090 (7%)

To Finance: $266,910 Amortized @ 5.25% Interest for 30 years

Taxes & Insurance $ 2922*/year or $243.50 per month

Total Monthly Payment $1717.39 (includes Taxes & Insurance)

10 Year Term Balloon: $1473.89 per month fixed for 10 yrs plus $243.50 (taxes & insurance) = $1717.39 payment per month. Payment is due on 1st of each month and considered late after 7th of each month. A late payment penalty of 5% of the monthly amount due will be assessed.

After 119 regular monthly payments you will have a balloon payment of $220,201.53 that will need to be paid off. Title/Deed will be held by Deborah Sema until all payment obligations have been met.

Prepayments may be made beginning with the 13th payment.

Final Approval will be subject to the following: • Acceptable Credit Report • Verification of Employment • References of current residence and history of rental payments. • Signed personal financial statement and copies of recent signed tax returns. • Background check.

*Property Taxes are subject to change; therefore this amount may vary resulting in a rise in payment requirement.

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My questions:

1) Is there a baseline what would you try to negotiate in this kind of deal?

2) Should I pay an extra 1% of whats in the market right now for house to get in the game 1 year earlier?

3) If going forward, what else should I include in the conditions for the deal?

4) any other advices?

P.s. I am a pretty new investor. The rent price for this house would be approximatelly 1500-1600 at the moment. School district is great, all the houses historically increases about to double the prices of what they sold for in early 2000s.

I would live in the house for a year or two before I plan to move out and make it a rental.

Any advice or insight is appreciated.

Gytenis Borusas

[Gytenis B.]

Originally posted by @Christopher Phillips:

@Gytenis B.

Gotcha...

On the surface, the numbers look reasonable. You're only paying slightly more than going through a lender.

Did you calculate how it cash flows when you rent it out?

 At the moment, I would be on rather low end pf cash-flow. Current rate would be approximately 1600-1800 per month for this house. 

I am counting on rents increasing slowly overtime as well as to recoup some money from the taxes every year while down paying the loan. Also, I would expect the house to continue to appreciate as it is in great location with great school system.