Seller financing deal

[Alejandro Valdes]

Hello,

I submitted a seller financing offer for 425K on a property and it was just accepted. I chose seller financing because i recently purchased a property as owner occupant and I must live there for a year and because seller owns the property outright. 

House is listed for 445k and it should appraise from 430k to 450k . I also have an appraisal contingency.  I offered less to be on the safe side and also because I asked seller to deduct my realtor commission from the selling price. 

Also, starting on June 1st the property will be leased for $3000 a month for 12 months 

Now, my offer was 425k selling price with 10% down and i will make $3000 principal only payments with a balloon payment in 15 months. 

Therefore, $425,000 - $42,500 = $382,500 then i will pay the seller $3000 a month principal only which i will be collecting from the tenant for 12 months and then refinance into a 30 yr conventional loan. After a year i would owe the seller $346,500

If property appraises for $445,000 i could refi at 80% LTV and pay closing costs with the difference or I can refi at 95% as owner occupant and cash out a substantial amount of money

Is this a good deal? 

I would like to get some input from more experienced investors 

Thank you in advance. 

[Joe Villeneuve]

No.  Terms are terrible...for the seller.  There's no reason for the seller to do this deal, and every reason to not do it.  What exactly is the seller getting in all of this?  Where's the incentive for the seller to agree to this?  

For you, the first 12 months you're just treading water.  The tenant is paying your principle down, but you're making no money through cash flow...which means, if you have any added costs/repairs/etc..., they come out of pocket.

Here's what I would offer: Set up a new LLC an fund it with the DP money (see below)

Buyer is the LLC

Purchase price: $430k

DP = 10% = $43k

Debt to seller (seller carries):  $387k

Terms to seller on loan:  30 years/2.5% 

Pmts:  $1530/m---> $18,360/yr

CF to you:  $1460/m - expenses

Total cost to you:  $43k

Time to profit (break even with cost):  27 month

Total income to seller:  $43,000 + (30 * 18,360) = $550,800

Seller has limited (if any) capital gains taxes.

Sell LLC in 5 years for $80k

Your profit is 33 months of cash flow + $80k from the sale of the LLC - $43k (DP)