Is this a good deal?? New to investing and seller finance and looking for advice :)

[C.S. Bryson]

Seller Financing Offer

Purchase Terms

1. Purchase Price: $215,000

2. Down Payment: 20% of the purchase price, equal to $43,000

3. Financed Loan Amount: $172,000

4. Interest Rate: 6.5% per annum (fixed)

5. Initial Amortization Schedule: 12 years (144 months)

6. Balloon Payment:

• At the end of 24 months, the buyer will make a balloon payment for 50% of the remaining balance of the loan.

• This balloon payment will be paid through a cash-out refinance of an investment property valued at $198,000.

7. Remaining Balance: After the balloon payment, the remaining loan balance will be re-amortized over 5 years (60 months) at the same 6.5% interest rate.

Payment Terms

Initial Loan Terms (First 24 Months):

The monthly payment for the first 24 months is based on a 12-year amortization schedule:

Monthly Payment for First 24 Months: $1,573.39

Remaining Balance at Month 24 (Prior to Balloon Payment):

The balance after 24 months can be calculated using the amortization formula:

Remaining Balance at Month 24: $157,113.92

Balloon Payment:

The balloon payment will be 50% of the remaining balance at Month 24:

Balloon Payment Due at Month 24: $78,556.96

Re-Amortization of Remaining Balance (After Balloon Payment):

The remaining balance after the balloon payment will be:

This amount will be re-amortized over 5 years (60 months) at the same 6.5% interest rate.

Monthly Payment for Final 60 Months: $1,541.18

Summary of Key Terms:

• Purchase Price: $215,000

• Down Payment: $43,000

• Loan Amount: $172,000

• Interest Rate: 6.5% (fixed)

Initial Terms (First 24 Months):

• Monthly Payment: $1,573.39

• Balloon Payment Due at Month 24: $78,556.96

Re-Amortized Terms (Final 60 Months):

• Remaining Balance: $78,556.96

• Monthly Payment: $1,541.18

Additional Conditions:

1. Prepayment Penalty: None. The buyer may pay off the remaining balance at any time without penalty.

2. Late Payment Penalty: A late payment fee of 5% of the overdue amount will apply if payments are more than 10 days late.

3. Loan Security: The property will serve as collateral for the seller-financed loan.

[Steve K.]

What do the comps look like? Hard to say if it’s a good deal without the most important piece of data, what is the fair market value? The rate is maybe a little better than what you’ll get in a conventional 30 yr. right now, but the terms are worse. If there isn’t significant equity capture at this purchase price, and it’s not in a great location, this would be a pass for me. If it’s a good deal based on the comps, and in a good location, then I’d look into a conventional loan and maybe putting a little more down so that it cash flows. There’s nothing special about the seller financing terms here IMO, unless you can’t get a conventional loan of course but if that’s the case the balloon payments create a high risk for you and you shouldn’t do it anyway. The 5% of the remaining balance late payment fee is a little much IMO.