Subject To Townhome Deal Analysis and How to structure and offer? (First Investment!)

[Armin Rostami]

Hi everyone, I came across a subject to deal with that would love to hear some experienced advice and feedback on the deal and if I should move forward with it. This will be my first investment and my goal is to get my foot in the door with a property that has minimal cash flow and is close to me so that I can gain experience as a landlord. Strategy is to ideally buy and hold long term with the possibility of house hacking it for the first few years. 

So the questions I had were:

- based on the info below, does this deal seem attractive and what are some counter offers I should give out to the seller that makes the deal more attractive for me? And how would you structure and negotiate this deal to make it a win-win?

- what are the most important things I should make sure to maintain in a Subject-to deal in terms of legal procedures as well as due diligence to minimize any issues? 

- Is having a 5-year balloon payment risky? and assuming the rates stay the same and I had to refi into a 6% rate after 5 years, would that kill the deal or would it still be worth it?

Deal Info:

- 3bed/3bath 1970s Townhome in the Bay Area (East Bay) - good location with good schools and low crime relative to other parts of east bay. 

- Purchase Price: $700,000 --> Comps are in ranges of ($680k - $750k)

- Downpayment: $160,000

- Agent Fee: $17,500 (I would have to pay as the buyer)

- Other fees: Everything else (including attorneys, inspection, appraisals and etc.)

Financing

- A) Existing Mortgage: $336,000 @ 2.75% rate (subject to) - First position (5yr Baloon)           

- B) Remaining balance: $174,000 - principal only seller finance second position loan (5yr Baloon)

- The most important factors for the seller is to get their equity paid upfront for the $160k down payment and to have the debt off their credit report in 5 years. So they are not willing to extend the balloon payments.

Monthly Breakdown:

- Rent: $3500

- First position Sub-To loan P&I: $1,371

- Second Position Seller Finance P&I: $566

- Taxes and Insurance: ~$870

- HOA: $375

Total Expenses: $3,183

Cash Flow: ~$300

Exit Strategy after 5-years:

- Remaining debt left: ~$470,000

Either refinance or sell


Thank you for all the advice and assistance!!