Owner Financing: Actual (realized) rate of return??

Question

Good Morning-

There are a few duplexes in my local area that look great, but due to lack of funds for a down payment, seller financing might be an option.  The properties are owned free and clear.  Before I try to make a pitch, I want to make sure my thought process is correct.  I may be making this too complicated, but math has never been my strong suit.

Assumptions for this exercise:

$145,000 purchase price

$5000 down payment

$140,000 @ 5% interest, 30 year amortization

10 year balloon

Based on those numbers, the monthly PI would be $752.  After 120 months, the total in payments made would have been $90,240.00

Based on a 30 year amortization, the balloon payment would be $111,879.00

The total payments after 10 years is now: $207,119.00 (down payment + PI + Balloon)

So in 10 years there is a $62,119.00 increase in value of the seller's 145k.

Based on these numbers, what is the actual rate of return over the 10 year period?

Thank you for the assistance.

Brent Coombs · Answer

@Matt Holmer, looking at it again, did I work that out right (only crediting the INTEREST as the Sellers return - not the principal)? Cheers...

Ty Kirkpatrick · Answer

Most sellers like to receive a rate of return greater than 4.5%.  Especially considering the Seller may desire to sale the paper in the future.  The value of the paper will be predicated upon several factors.

Most note buyers look for discounts based upon the fact the Seller has received a certain amount of payments, the Borrower put sufficient down, and the value of the note is in line with the real value of the property minus any equity over the note value.  Most investors like to see a yield of at least 10-15% annually for their investment.

Brent Coombs · Answer

@Matt Holmer, I'm not so hot with numbers either, but on the surface it looks like the Seller would be receiving an average of around 4.5% return per year, with the final balance of $112k being in their pocket at the 10 year mark.

As the free and clear owner, I don't think I would be tempted to sell for those drip-feed amounts. Did I miss something?...