Good or Bad Owner Financing Apartment Deal?

[Zigmunt Smigaj]

Hello BP Ninjas,

I'm looking at a 10plex renting for 500 per unit fully occupied (zip 36303 AL). Seller wants 500k with 10% down on owner financing. Term will be 30 year but balloons at 3 years if I dont find my own financing through a bank. All the commercial lenders in town want 20 year amortized schedule with 20% down (which I dont have), and if I did the mortgage would be too high.

These are the numbers. Under the 50% rule by $200. So after 3 years I will only have about 30k to finance with.... yet 20% down on the remaining 450k will be 90k... which I dont have. I need some advice on how to negotiate this better or evaluate the deal and find out my max offer.

Also should I get a lawyer involved and set up LLC for this?

[Paul Palmer]

Hi @Zzigmunt Smigaj I have always had a simple rule of thumb that you always want to may sure you have owner financing out a minimum of five years. - (it still goes by way to quickly). Ways you can get there are to have extensions in place that will allow you to add a year or two to a contract with a lump sum principle payment. In essence you are buying some time but also working to get to that magical 75% LTV # with a principle payment. Also don't forget to insert a clause that allows you refinance the owner finance balance with a 75% LTV loan, based on an appraisal, with the owner agreeing to carry any amount above the 75% LTV. This would be a carry back 2nd or even secured by another property such as a sgl family home until the loan is seasoned some. Give yourself multiple options because the truth be told no one has a crystal ball when it comes to the future of REI.

Build from within, learn everyday.

Paul