Multi Family Seller Financing Advise

[Bryan Field]

Hello BP!

I am a new ish investor looking for some advise on a multi family deal (4 units) with initial asking seller financing terms of 

• Price: $824,999
• 10% Down Payment = $82,499
• 10 Years Interest Only at 5%
  • Monthly Payment = $3,093
• 5% Prepayment Penalty for the First 5 Years

The building is 100% rented bringing in $3,950/month. There would be an opportunity to increase rents and everyone is MTM.

The land also has space to develop another 2 units for value add.

Hoping someone can help me understand the pro's and con's of an interest only payment for 10 years. 

Looks like the cash flow here is just under $1k/month ( without factoring in Maintenance/reserves etc.)

Thanks!

[Steve Vaughan]

Quote from @Bryan Field:

(4 units) with initial asking seller financing terms of 

• Price: $824,999
• 10% Down Payment = $82,499
• 10 Years Interest Only at 5%
  • Monthly Payment = $3,093
• 5% Prepayment Penalty for the First 5 Years

The building is 100% rented bringing in $3,950/month. There would be an opportunity to increase rents and everyone is MTM.

The land also has space to develop another 2 units for value add.

Hoping someone can help me understand the pro's and con's of an interest only payment for 10 years. 

Looks like the cash flow here is just under $1k/month ( without factoring in Maintenance/reserves etc.)

Thanks!

 So the pros and cons of interest only are less cost per month but non-declining balance.   I sold 2 assets (a 7 and 11 unit) this year with seller--financing, interest only.   It's like a perpetual annuity while being serviced.

Are w/s/g tenant paid?  In my area they are owner paid and cost about 16% of gross rents.  A quad has sewer of $190/mo, water $100, garbage $100. Insurance $210/mo, taxes $325. Then.... maintenance,  repairs, reserves. 

When I buy multis, I really shoot for 1%ers. Yard and snow removal and utilities aren't passed along like with houses. These rents should be closer to $7-8k/mo to pencil. I sell at .5%, which is basically what you have.   

Make sure you will own it while making payments. No Land Contracts or CFD.