9% cash flow pot house, want your opinion

[Yu L.]

I have a deal which I structured owner financing in it, my plan is hold on to it and will either sell it at the end of the loan period or just keep it.

It is a SFR, ARV is ~ $450k, I am buying it at $461k. The deal is actually in the financing. The way to pay it off as follows:

$30k down today.

first 5 years, monthly payment $1100

2nd 5 years, monthly payment $1175

3rd 5 years, monthly payment $1250

At the end of the 15th year, there is a balloon payment for the remaining balance of ~$220k.

The current market rent is about $2200, so excluding the property tax, insurance, cash flow is about $600/ month.

Fix up cost is ~ $50k

So the cash on cash return just on the cash flow is 9%/yr. (the rent tends to go up by 3% yearly in my area, so by the 6th year, rent will go up to $2550/ month and by the 10th year, rent will go up to $2956/month)

And assume I sell it at the same price 15 years from now at $461k and pay off the $220k, I still net ($241k - closing cost / fee) at the end of the 15th year.

However, there is some settling issue in the concrete slab foundation, which I don't plan to fix, I'll just fix the door frame and window frame to make it rentable.

There is another issue, it seems the current tenant is grow pot (they insisted it is for medical use and said they have the license to do so) in the converted garage, which they don't allow me to get in. They are planning to move out though.

1st question is should I close after the tenants move out or just buy it as is and kick them out myself, I don't know what the landlord's liability is if tenants are growing pot in the house.

2nd question is what is the negatives you see in the deal, other than a long holding period and negative equity at the beginning (It will take roughly 11 years to get my down payment and fix up cost back)

3rd question, what is the best exit strategy?