Your Advice on 2 Potential Deals

[Melinda Smith]

I have a couple of Owner Finance deals that I'm considering and would like your opinion.

Deal 1:
It was fully rehabbed approximately 12 months ago. The OF note balance is $80,775 paying $815/month with 1 year seasoning. The underlying bank debt is $62k - pmt is $598.97 @ 6.5% int rate with 145 months left. I would have to pay $10k down. The cash flow over and above the bank payment is $50 cash flow after taking out taxes and insurance. This would be a 6% return on your down pmt. Its not the best deal but the house is in good shape and brick which makes my husband more comfortable in case the buyer backs out. He thinks we would have an easier time finding another buyer candidate.

Deal 2:
This is a 3 bedroom Frame home on a large lot. The client has been in the house for 3 years. Their note ist $76,500 9.75% /670.01 per month PI. They also pay taxes and insurance. The underlying note balance is $34,000 at 7.5% $544.62/mo. It only has about 6.5 yrs left for full payoff. I can buy its with 10k down. My initial cash on cash return would be 15% for 6.5 years. Once the property is paid off your return would go to 65% per year. The primary issue is that the seller cannot guarantee how long the current lender will continue to renew the loan. It is currently on a year to year basis at this time. The bank will not refinance me as they are out of the Texas marketplace. I would either have to refinance it at another bank or buy it outright. In 1 year, my loan balance at the bank would be in the low 30’s at that time. Another problem with this deal is that it is a teeny tiny A frame house. My husband is worried that if we buyer defaults, we would have a hard time finding another buyer. So there you have it - 2 deals. What is your opinion?

Thanks, in advance!