Seller Finance

[Colby Litzenberger]

Hi All -

First post. I have been trolling around for awhile, but have an interesting deal in front of me and want to get the communities advice.

My landlord has offered to sell me the building I live in. It is a converted house with 6 units. So it would require a commercial loan. I do not have the cash required for a down payment. However, the seller really likes me, and she likes deferred payments so she is willing to work with me.

I talked with her last night and she seemed open to the idea of her carrying a loan amortized for XX amount of time with a balloon payment in 10 years.

I want to run some numbers by you guys and see what the consensus is:

Financials are as follows:

- Taxes, utilities and insurance - $825/Month.

- There is coin op laundry that brings in about $40/mo.

- Rents (with a conservative projection of basement unit) = $3230. Rents are low for the area. One tenant hasn't had his rent raised in 3 years.

- Building has a good roof, and paint is probably 5 years old.

- No central heating or air conditioning.

- Very stable neighborhood for renters.

She said she will list it for $350k. I am going to offer $300k on the basis that she has no Realtor fees, it needs new windows, and the basement apartment needs a rebuild (last tenant was an elderly lady/hoarder, no major damage, just filthy and needs new floors).

My thought is that I offer a 30 year amortization at 5% with a balloon at 10 years. No money down (she likes the idea of me doing some structural engineering for her on her next house). If I run the numbers on that, using the "60%" rule since I would be my own, on-site manager, and I will be doing my own maintenance for at least the near future, it cash flows $367/mo at current rent rates. My only cash in the game will be for the rebuild of the basement. Which I am projecting will cost me $6k since I am going to self perform all the work.

So my ROI is 73.5%/yr. My thoughts are acquire the property. Renovate the basement, and keep the house for 5 years. At that point decide if I want to sell it and pay the seller off or keep for the long haul and hope interest rates aren't too bad in 10 years when I have to finance through a bank for the balloon payment.

Do you all think this is a fair assessment or does it look like I am reaching because I want the house? If I left out some pertinant information let me know

Cheers!