?Creative Financing Question

[Jeffrey Bradbury]

I’m looking at a property that seems like it will be an alright investment for me to buy and hold. The owner is looking for $170k and I can get $1900.00 a month in rent for it. The owner also has a second property that they are looking to sell and from what I can tell it’s very similar to the first. I’m told that the owner is VERY motivated. So here is what I’m thinking, and please let me know if it sounds like a bad idea, or add any comments that you would like:

I can finance one property using traditional financing, and I’ll even give him his asking price, if he is willing to owner finance the second property with terms that are favorable to me. This gives him the cash up front from the first property, gets him out of the properties, and allows me to pick up two properties when I otherwise would normally only be able to pick up one.

Will this work? How would you structure something like this? Do you need more details?

Thanks in advance!

[Robert Leonard]

@Jeffrey Bradbury it's okay to ask for further explanation.  Here's my quick desktop analysis (it is a guestimate):

170k Purchase Price * 20% (Down Payment) = 34k + ~4k (3% for estimated closing costs & prepaids)=~$38k total acquisition cost.

That leaves 136k (principal balance) @ 5.5% for 30 years with a payment of 772 Principal & Interest, plus ~300 (?) Tax/Insurance (probably more). Using these numbers, your payments would be ~1072/month.

1900 Rent - 50% (estimated operating expenses) leaves you with 950 of income to make your monthly payment of 1072 with. And that leaves you $-122/month.

As you figure out the real numbers, you can plug them in to the equation above to come up with a better estimate.

The 50% I used to estimate expenses is what is known as "the 50% rule."  People will tell you all the time, you can do a lot better than that.  It's not written in stone, and you can beat it with some exceptional property management you do for yourself.  BUT, over the long term, you will find that it is pretty accurate and serves as a good way to conservatively estimate operating expenses of residential properties.

That wasn't as quick as I meant it to be. :-)