Owner Financing Deal or No Deal?

[Caleb Godsey]

Hello BP Forums and Happy Friday! 

I'm looking to complete my first deal soon. Following many recommendations in the BP podcast, for a first time investor, it sounds like owner financing can often times be the best route to take. One problem...I'm not sure I fully understand how the numbers work. 

I figured it would be helpful to post about my lack of knowledge for others to learn from as well. I have a deal that came across my desk recently that I'd like to use as the basis for the numbers. Some of the numbers I think I understand but others, not sure I quite get it. The property below will be used for a BRRRR or fix & flip.

So here's the deal:

Home Price: $37,000

Rehab Costs: $15-20,000

Owner Financing Terms Outlined by Seller: 10.25% interest. 10 Year Amortized. 15% Down.

Estimated ARV: $80-90,000

The way I understand how owner financing works:

Downpayment: $5500 one time ($37000 x 15% [or .15])

Financing Payment per Month: 268.64/mo ($31,450 x .1025 = 3223.6/12)

Amortized over 10 Years: Not sure about this part and how it affects calculations above

Would love for any help I can get on understanding these numbers and hope that this post helps others who may have the same questions as me. 

Thanks in advance!

[Peter M.]

You are assuming simple interest. Most loans are compound interest. Amortization is the length of time for the loan to payoff if no extra payments are made. Use the PMT function in excel to get the monthly payment for this loan.

Down payment: 5500

Loan Amount: 31500

Interest rate: 10.25%/12 months

Excel will tell you your payment will be around $420/month and will pay off in 120 months if no extra payments are made and there are not prepayment penalties.