Deal Analysis Help on House Hack

[Bryan Springhetti]

Hey Everyone!

I wanted to reach out and see if a current contract I have on an off-market deal makes any sense.  The details are as follows:

Property is a 1500 sq foot duplex here in Louisville (40217 zip code) that needs pretty serious renovation (finish hardwood floors, new kitchens, bathrooms, new paint, windows)  Mechanicals are good and do not need replacing.  It had been rented previoulsy by two very long term tenants that both recently moved out.  Front unit is 575 sq foot studio we planned on turning into a true 1br.  I am very confident on 800/month as worst case and top end being 900 to 950.   

The back unit is 925 sq ft 2 br 1 bath.  It needs similar renovation to the front.  My wife and I would be living in this unit and house hacking.  The back unit would bare minimum rent for 1000 and top out around 1200-1250.

The main rub on this deal is owner will not sell for less than 150k in its current state and only through owner financing.  We cannot really do traditional financing in my opinoin because the property will not appraise in current condition at 150k (red flag).  The terms are 4.5% amoritized over 30 years with a 5 year balloon.  In addition, he wants payments each month totally 1k (extra money goes towards principal).  We have a tenative agreement that I can refinance after one year with a bank note paying off the remaining seller financing note if desired.

The area overall is appreciating well and will continue to for the forseeable future.  I am still getting a quote on the rehab costs but looking at 25-40k at the max depending on finish and extent of the work.

I am leaning towards no due to pretty unfavorable conditions but the owner has bad information from current contractor on rehab costs and ARV. Let me know what ya'll think! Appreciate the input.