Owner Financing

[Alan Day]

being new to real estate investing, I have an opportunity that I was looking for advice on. The 1923 built property is a 4/3 in the Midwest and owner/investor purchased at auction for $53k in 2000. Currently and consistently rented for $1,200 per month and the asking price is $79,900 that matches an appraisal done.

The owner is willing to finance 3 year balloon amortized over 20 years at 6% = ~$500/month payment. Owner is looking for 20% down. Analysis shows positive $400 to $500 per month. No inspection done yet but walk through shows only minor issues.

Does this sounds like a good deal to you?

[Steven J.]

A couple things stand out for me. Specifically the 50% rule. This rule states that 50% of monthly rent goes towards expenses minus the PI. Then subtract out the PI and what your left with is a rough estimate to the cash flow per month. Following that rule ($1200/2=$600. $600-$500 in PI = $100 cash flow. In theory it hits perfectly but Bill brings up a good point about needing more information and getting due diligence done. Is the rent 500 or 600? Is this a small town where the vacancy rate could be higher?

Another item of interest is why do owner finance on this when you could get a traditional loan? He's asking for 20% down, so does a bank, so why have the 3 year balloon? What does the owner financing get you in this situation?