Rental Vs. Seller Financed - Which is better?

[Matt Dunlap]

I ran across a condo that actually cash flowed in CA. I called the agent and she said the complex was maxed out on rental availability, so this unit could not be rented, must be owner occupied.

Creatively, I'm thinking about buying it and reselling with seller financing. I will have a higher cashflow since I will not have to pay HOA, or any other expenses, but I have to put in more of my money, and I will be limited because I do not control the condo.

Hoping to get some help with analyzing this deal. Any advice and criticism about my numbers is welcome.

Condo is offered at $195,900. Rent in the area is $1,600, HOA is $390. With ~$5,000 in repairs, would be worth $210K

As a rental

• I purchase with 30% down (cash invested ~$58K)
• Cash flow: $440/month
• COCROI: 8.32%

As a Seller financed

• I Offered owner $179K (Cash)
• $5,000 repair costs.
  
• list the condo for $210,000. In the case that someone does not want to buy with seller financing, we will profit $18,000 for the flip
• financing offered: 0% down, 5% APR, 5 year mandatory refinance with bank.

The new owner will pay $1,290 + $390 HOA for a total payment of $1,680, (compare that to $1,600 average rent in area)

I will cash flow $1,127 (compared to $440 if rental)

At 5 years, when they have to refinance, the payoff will be ~$192K, adding the P&I from the last 5 years, the total return would be $261k