Is it worth paying a premium for favorable terms?

[Luke Rusten]

Hello friends,

I found a seller financed listing where the seller is asking for a significant premium on multiple homes, but they are open to low interest rates and 40 year terms. These homes have long term tenants and will cash flow albeit slightly under $100 per unit if I don't raise rents. My calculations are based on 2 sets of numbers - the numbers the seller has provided, and my own calculations accounting for 5% for vacancy, 5% for repair, 5% for capex, 10% for property management and actual costs for property tax/insurance.

I am trying to decide if this deal is worth pursuing or if I should walk away due to the premium on the homes. I don't love the idea of essentially being locked into holding them for a long time because it may take many years for them to appreciate enough to meet that premium, but I do like the idea of cash flow, low interest, and longer terms. I do intend on holding them for a long time, but again this limits my flexibility in the short-to-medium term.

Does anyone have any thoughts/suggestions for me? This is my first deal of this kind and I want to make sure I am considering everything.

Thanks in advance!

[Drew Sygit]

@Luke Rusten have personally used a higher price to get sellers to accept my seller financing proposals many times in the past!

If you want to figure out the value logically, you can create a spreadsheet that will show your cost of financing and principle paydown on an annual basis to figure out the break-even date between the seller-financing price vs paying market price, but with bank financing.

You mentioned a 40-year term, but is there a balloon?

What about prepayment penalties?