creative financing question on first rental property

[Matthew G Roy]

Hello!,

I am new to bigger pockets. The wealth of information is dizzying to say the least. I am currently looking at my first rental investment. I have ran the #'s and the cash to cash return is pretty good (about 35% in the first year). The only issue I have is that the asking price is about 25% higher than comps. I don't want to low ball an offer but I don't want to pay higher than market price either (even if the ROI looks promising) so I am trying to come up with a way that would be beneficial for both parties. Since it is a rental management company that is selling the property I was thinking of an offer at market price (about 25% lower than asking). Along with this I am going to ask for them to hold the note with a 10 year repayment term. I was going to do this for two reasons:

1) If they agree to 4% over 10 years this will not only help me out by giving me a lower rate than through traditional financing but it will also allow them to recoop their sale price in the form of interest payments. 

2)  This will get them to have skin in the game. Since they will be the full time management company it will really push them to do their job and keep it occupied. If I have no income then they don't either.

Even with the 10 year terms and the higher mortgage payments I will still be netting a little over $300 a month. I could just wait for them to lower the price at market levels and then make an offer but I was just thinking of a fair deal that will allow them to get what they are asking and also allow me to finance w/ a lower rate.

Has anyone done this? Is there something else that I need to make sure I outline in my offer? 

Any input is appreciated!

[Brad Cornell]

Hey @Matthew G Roy welcome to the BP world!

So I agree entirely with @Christopher Phillips in that you need to figure out who actually owns the property.  Also, it will probably be hard to get the owner to hold a note that is subprime, meaning a lower interest rate than a bank would probably offer.

My other concern is that you say you can get a 35% return the the first year when it is 25% above market value.  Not sure what this deal looks like but that sounds a little fishy to me.  If it was that good of a deal then why isn't it sold already?  If it's that good then why not just pay them the list price?