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Need advice
awhile back I was looking to buy a duplex and that deal fell through due to the seller no longer wanting to sell the property. Yesterday I spoke with my grandfathers friend who wants to sell me his duplex. He wants to do a lease to own and wants 7,000 upfront then I will pay him each month for the next 5 years $22K for a total purchase price of 29K. One side is vacant and needs some work done and the other side is currently rented for $350/mth. I feel this is a good deal, however I have never done the owner financing before and just wanted to know what I should look for to protect myself. He is speaking with his attorney to have the paperwork drawn up but I am obviously going to have my attorney look over it. Any help would be appreciated. Thank you!
What will be your monthly payment to him? how much work needs to be done to the other side?
also what are his monthly expenses? water/gas/electric/maintenence?
I will pay him $350/mth so I know my monthly cash flow will be tight until
I get the other side rented . He pays the water and sewage which is about $50/mth. The vacant side does need some work and paint but could be rented tomorrow. It will need new windows and probably in 5 years it will need a new roof. I believe it is a good deal because he is not charging interest. It's a straight 29K deal and will save me a lot of interest that I would be paying if I got a conventional mortgage. Plus I will own it in 5 years free and clear. I plan on charging $400/side (or at least the vacant side) and I will pay the sewer and water because it stays with the home in PA. Thanks for any advice!
Congratulations on this opportunity. Buying with seller financing is one of my favorite methods of investing. Finances aside you should be aware of the pluses & minuses of this type of deal structure. I am happy to hear that you are consulting an attorney to review this transaction & advise you accordingly.
Two of areas that come to mind as buyer in a lease option or a "contract for deed" for deed transaction are :
1) Title: Since you won't receive title until your last payment, the current owner is at risk of future liens or judgments that could attach to the property before title is transferred.
2) Enforcement of performance: If the seller get's cold feet or something should happen to him & his heirs or someone else take's control of the property, can you be sure that what was promised will be carried out.
This is not a comment on the trustworthiness of the seller, it's about educating yourself & having the wisdom & foresight to preventing expensive problems in the future.
On the financial side, I would ask for a provision to defer part or all the monthly payments until the property can sustain the monthly payment comfortably. I wouldn't just accept that you have to have a "tight" cash flow situation even in the short term. You may be able to negotiate more breathing room for yourself & still satisfy seller. Make sure you run this scenario with a financial calculator to see what you yield will actually look like.
I am very excited for you, what a great opportunity.
thanks @Ellis San Jose I was really bummed out when the last deal fell through. But as the saying goes "when one door closes another one opens" so hopefully this will actually go through and I can finally get started. I really like your idea of asking for a lower payment or a deferment on payments until I can build up a cushion. Plus the vacant side will need 9 windows in total and some paint and cleaning so I would rather do this prior to putting someone in it so I don't have anyone in the way while I am working on it. I will run this by him and hopefully he will accept it and we can move forward. I'll keep you posted as I hear more. Thanks again!