Average interest rate when buying on contract?

[Johnny Ryffel]

I’m 26 years old and I’m trying to get my feet wet in real estate. I have a guy that’s trying to sell my 4 single family homes and a duplex on contract at 6% interest. I have really good credit and a decent chunk of money saved. I feel like 6% is pretty high and is making it to where I’ll only be cash flowing $5,500 a year. That cash flow is not near enough for me to feel comfortable, especially on a 25 year contract. I feel like this is still a really good opportunity to start out but the numbers just don’t make sense. All of the houses have almost been completely remodeled and he did a fantastic job on them. I feel like if I could get the interest rate down the numbers would work. Thoughts?

[Will Fraser]

Hi @Johnny Ryffel, welcome to the BiggerPockets forums!

By "on contract" it seems like you're referring to Owner Finance.  In that case, you'll see percentage rates all over the board but it's all a bit of a shell game.  6% interest over 25 years with $0 down payment is not a bad deal at all, especially on a well-renovated set of properties.  3% interest over 15 years with 20% down is a bad deal generally, even though the interest rate is nice.

So long as you're looking at low cash out of your pocket in the deal and would have the ability to refinance, prepay, or assign the owner finance loan then this could be a stellar deal!  If there are other restrictions on the purchase then you'd want to negotiate those things away IMO.