Special financing creates value

[Marina Wong]

I am a first time investor in multi family. In the process of purchasing a multi family in Lowell, MA. The seller is financing at 15% down, 5% interest rate, 30 yrs amortization, 15 yr balloon payment. Due to this, the cash on cash return is almost 20%. However, what we have negotiated is higher than appraised value (from a buyer whose deal fell through). The negotiated price is also on the high end of value using gross rent multiplier. While it seems like a good value through the special financing, the value will not be there otherwise. The property is updated and fully rented in a relatively desirable neighborhood. I am comparing the return with other properties using 25% down current rate of 4.625% - 5%. Are there other financing options available? It seems that Marlboro and Worcester multi families do not have as high gross rent multipliers. Am I comparing apple to orange? Thank you in advance of your help.

[Bill Gulley]

Financing does not add value to real estate, it only adds value economically to the transaction to the value of the alternative not taken.

You may not have a motivated seller, these deals are all too common, the owner wants out of landlording headaches, basically the same net income after management without taking a hit on taxes.

Strike a better price in cash (financing elsewhere) and stay on that track, if they aren't interested walk away, it won't sell next week! After getting a better price be prepared to carry through, but then give the seller the opportunity to finance at that price, they might take it.

You didn't mention price, that indicates what you're looking at, if it's too high, at 25% down you may consider new construction with a contractor. 7, 8 or 10 years with very little maintenance has value. :)