What rate should I expect to pay on owner financed 2nd mortgage?

[Eric Hathway]

I am considering a 11 unit building for $700k in NH and only have 10% down. My bank requires 20% down so the owner said he would give me a second mortgage at a rate of 10% for either 5 or 10 years. Is that a high rate or a good deal? Cash flow will cover it, but I don't want to be taken for a sucker.

[Gino Barbaro]

@Eric Hathway

Hi Eric

we just did an owner finance on 288 units for 20% of purchase price.  2.2 million dollars at 4.5%, 30 yr amort, we wanted 7 yr term, he balked and we settled at 5 yr term.  The seller was motivated and we got a great deal.  If your seller is motivated, I think 5-7% range is fair.  Banks are lending anywhere from 4 to 4.75 on 25 yr commercial.

If the deal is terrific, then take his loan, reposition the property and refi in the near future to pay him off and possibly extract some capital for yourself.

I always like to hear seller financing deals.  It shuts up all the people that say it's impossible to do.  They're not easy, but nothing good is.

Good Luck