Seller Finance Deal $380K

[Jeremy Blackman]

I have a seller finance deal pending. Price $380K , 20% down, 1 year Note, 6% interest, Amortization not decided yet. I do plan to use a HELOC at 9.25% for down payment. I plan to refi at one year after raising rents. Do I need to get an appraisal done? Is this a good deal or were can improvement be made?

[Axel Norvell]

More info would be needed to determine, but based on the limited info it doesn't seem like too great of a deal.

You're taking on a 1 year note and hoping you can hit appraisal within that timeframe. If that doesn't happen, you will default and lose the property.

I would negotiate for a longer term and lower down payment. At 20% down and 6% interest, you might as well just go and get a conventional fixed 30-year...then at least you're locked into your numbers for 30 years and can be 100% confident of your numbers on close, instead of 1 year from now where the economy is changing rapidly.

If you're trying to fix up the property before refinance, see if the seller can offer you better terms to do that, put a safety net in the contract if it does not appraise for what you and the seller might expect.

Some other questions you should try to answer:
- What is the ARV (after repair value) - keep in mind most lenders will only loan up to 80% of the appraised value.
- What are the current rents and fair market rents?
- What are all the other expenses beyond your expected mortgage payment (Insurance, Taxes, Vacancy %, Property Management, Repairs/CapEx)
- What is your cashflow (Rents - Expenses)
- How much of your cash will you put into this deal? (down payment, closing costs, tax/insurance prepayments, rehab costs)
- What is your cash on cash return?