First owner finance deal

[Paul A Christy]

Hi everyone, I found an owner willing to be the bank for me for 95% (only 5%down ) in a simple loan of 4.25 percent interest for 5 (maybe even 7 years) but then the balloon pops and I owe him the entire asking price. As is I would probably cash flow around 1-2 hundred on day one but it’s under market rent by 5 to 7 hundred a month (tenets are month to month ) and he has 4 garages that I could rent out there as well. Property is in good shape and in an EXCELLENT town. But my concern is when I have to refinance that it will not have gained 20 percent equity since I think it’s about 25-35 k over market rate (lessthan 5 percent of total)  or worse it will go down in value putting me in a pickle.. any advice please??

[Caleb Brown]

5 years is a long time and anything could happen. If it's a 100K price point(for an example), you'd need it to appraise at 135K or more to pay him off. That's only 7K in appreciation so 7% per year. If the current market is doing way more than that you should be in okay shape. What would you the balloon payment be for? Have you asked an agent to run comps and see where the current market is doing in terms on appreciation? Would this be your first deal? 5% down at 4.25% interest is cheap and 1% lower than going to a bank for a loan. Figure out how to make this property work if it pencils out :)