Duplex Purchase Deal Thoughts

[Ryan Bakerian]

Hi all, I'm looking at a duplex a very good client has offered me. I own another multi unit on this street as well. It's in a B class neighborhood with major pharma growth. It's completely renovated top to bottom and has roughly $200K in the renovation. It's a 4 bedroom, 2 bath duplex. (2 bedrooms per unit). Upstairs gets $1300 a month and downstairs is vacant. I'm guessing around $1600 in this neighborhood easily. Off street parking, quiet dead end street. Building retail is around $335,000 - $350,000 on market currently. I proposed a couple owner financed terms to them and they returned with this one:

Sale Price: $300,000 

$25,000 Down. 

3% interest. 5 year balloon. ($244K ish) 

This is obviously far better than any bank can give me with interests rates around 7.5% here non owner occupied. Closing costs be way higher on a non owner financed deal. I can make roughly $900-$1K a month with these numbers fully occupied. Property would be worth around $375,000 at term end. I could refi out to a tradition bank and keep it as a hold. 

Thoughts?

[V.G Jason]

So 8.33% down? You need to put more down or extend the length of the balloon

In 5 years will you gain enough equity in it to be able to re-finance it---25% likely, minimum 20%. If so, great. If not, then you're screwed.

Also, if/when you re-finance are you prepared for rates to be what they are then which undoubtedly will be higher than 3% off of a new appraised price?

Basically, if you're able to capture the equity it means the underlying house price went to your favor. It doesn't necessarily mean the rates did. Do the math and see for yourself.