Just need a second (or third) opinion

[Wesley Woo]

Hi everyone!  I've been listening to the podcasts and have been lurking a bit on the forums.  Now, I've decided to jump in with my first post and would like a second opinion on a negotiation.

I own a duplex literally around the block from the current target so my assumptions are based on experience from that building.  Looking at a 2,600 Sq Ft duplex with 3/1 on each side.  One side occupied at $650/month and other side currently vacant but move-in ready (I think owner was looking to sell to owner-occupant).  Rents are somewhat below market and have some upside, but for the purpose of this analysis and to be conservative, we'll go with $1,300/month in total rent = $15,600/yr.

After one round of negotiation the asking price is currently $86,000. Taxes are $2,000/yr, insurance = $950, sewer = $360, tenants pay all other utils (electric, gas, water). Using 10% vacancy and 10% maintenance reserve = $3,120. So, $15,600 rent - $2,000 taxes - $950 insurance - $360 sewer - $3,120 Vacancy and Maint = $9,170 NOI. Anything I'm missing to calc NOI?

Using the $9,170 NOI and my "walk-away" purchase price of $82,000, I calculate cap rate of 11.2%.

Here's the kicker: seller financing.  Currently at $10,000 down payment (12.2%) with a 5% note fully amortized over 15 yrs = $570/month. No balloon payment (as of yet!).

On a monthly basis I'm looking at: $1,300 rent - $535 expenses - $570 mortgage = $195 CF/month and CCR = 19.5% (assuming $12,000 cash at close).

So, I think this a good deal with conventional financing and an even better one with the seller financing (esp. w/ seller holding paper for 15 yrs).

Any suggestions on better assumptions is much appreciated and I would like your thoughts on this deal and on the financing aspect in particular since this is the first seller financed deal I've encountered.

Thanks to all!

[Larry Turowski]

@Wesley Woo Seller financing is always great, and the cash flow looks good, but how is the price?  You'll pay more with seller financing, but as an investor you don't want to be under water on the deal.  Make sure the mortgage is assumable.  That way if you need to get out and you sell the same deal to someone else.