Seller financing on this property-worth looking into further?

[Steve Foth]

Property will not cash flow right out of the gate due to the 5 yr term. I believe the property has been for sale for quite some time. Price is similar to a sfh currently listed in the neighborhood.

Rent here would gross $1000 monthly(only 2/1), so it would be cf negative for 5 years in both of the below scenarios. It is in a very unique area right off the lake where all the summer festivals are. With some updating, it could be more desirable and add another 100-150/door.

Land contract scenario would have some benefits as I begin building a portfolio. It was not really what I was looking for when I saw the property in the past, but seller financing has made me take a 2nd look.

Any thoughts, suggestions, etc would be greatly appreciated.

Seller finance terms:

Selling price of $49,000; $3,000 down; 5 year balloon mortgage - 6.5% interest. $750 monthly payment (includes $550 P&I and $200 for taxes and insurance. Balloon due at 60 months:$24,740

Other contract terms are available including full payoff over 5 years (about $1,100 per month).

[Account Closed]

Originally posted by @Bill Jacobsen:

I would calculate this property at about a 12 Cap. You are paying 6.5% for money. It looks like a good deal to me.

There are two question you must answer. Do you have the resources to handle the negative cash flow? Will you be able to pay off the property in 5 years?

If your answer is yes to both questions, you should go ahead.

Good Luck.

Bill

How would you calculate a cap rate based on the limited information given? If you did have the complete information and the result was 12 percent how on earth could you declare that good or bad not knowing the market cap rate?