Owner financing: interest due on sale!

[Meredith Mihm]

Help-- should I do this? I just negotiated an owner financing deal that I am happy with. I like the down payment and the monthly payment. The property is distressed, and I will be getting it for a good price. He wants to amortize it 50/50 interest and principal for the life of the loan (30 years), I'm not sure exactly why, but tax reasons.

The potential problem is that he will only do it if, when sold, we owe him the entire amount WITH interest. So if we had to sell it in the first few years, it might be hard to break even.  I don't plan to sell, but this makes me a little bit uncomfortable. Other than  that, the deal is a very good deal. Should I do it? 

Details:

4 plex-- income $3000/mo, Purchase price 140K, 40K down at 6ish% interest, amortized over 30 years (so no more than $700/mo payment) 

(Expenses: tax $225/mo 

Insurance: $150/mo

sewer: $200/mo

lawn/snow: $50/mo

capex/repair/vacancy: $700/mo

(So almost 1000/mo cash flow)

But, if sold, the total amount owed with interest (initially 197K after down payment) would be due. 

I would have to put in at least 30-40K to correct deferred maintenance, but ARV should be 250K-300K.

Am I missing anything? This is a good deal, right? 

[Joe Villeneuve]

I wouldn't do it.  This is basically a simple interest loan with a prepayment penalty.  One of the best aspects of a seller finance loan is the ability to sell the property, and keep the note intact.