Is this potentially a good deal?

[Chris D.]

I've stumbled somewhat into an opportunity and would like the advice of some experts here on if you think this is a good potential deal. I wouldn't say this is traditional, so evaluating the risk/reward is a bit more complicated for me so this is the reason I'm reaching out.

First, some background on our current situation. We have 2 rental properties, a Single family and a multi family (4-plex). These were purchased last October and this past March respectively. We are also building a house so we're tapped out for borrowing money from banks at the current time. After 2-years we can include our rental income for our Debt-to-Income ratio and may free up some more borrowing.

So on to the current opportunity. My realtor ran into a guy that is willing to do seller financing on a property he has. It's in a nicer area than my 4-plex (probably the ghetto of my midwest city, but it's not too bad). This complex is a 2 bedroom apartment on the main floor, 5 "sleeping rooms" on the 2nd floor and 5 "sleeping" rooms on the 3rd floor. 1 of those has a small/tiny kitchen. So essentially the rooms, excluding the main floor, have a shared bathroom on each floor but the rooms have no fridge/kitchen. 

The condition of the property I'd rate at a B level, the current owner has kept a lot of it up to date. There is some knob and tube in the basement and some on the 3rd floor. I've run that rodeo before and insurance required me to update my 4-plex, but this seller says we could just transfer he current policy (? not sure if this is possible) or he can perhaps hold the policy for me.

Rents are as follows - Main level $750 per month, 2nd floor has 1 with a tiny kitchen for $300 and then the rest of the rooms on the 2nd/3rd floor are $240 per month each (8 units).  Total rental $2970 per month. 

The owner currently provides a single bed and mattress, plus so rudimentary furniture. He said he probably replaces one or 2 beds per year. Utilities are paid by owner ($6000 annually) and he said he currently pays one of the tenants $150 per month to clean all common areas and collect rent.

For terms, he's thinking of selling it for $165,000 and preliminarily said 5% for 3 years, but may go for a longer term. The seller had open heart surgery and cannot keep up any longer.

Because of the nature of this complex being (sort of) a halfway house vacancies/non-payers I'm estimating at 20% (verified by the seller when we met for over an hour yesterday). Filling the units he said is super easy as he has a huge waiting list, but getting people to pay is a bit more difficult.

So, I was wondering what the community thinks of this. It could be a good way to get into a larger complex without banks and without worrying about debt to income ratio being maxed on paper currently. When I run the numbers conservatively ($4000 maintenance reserve) with property management I'm coming up with $500 net per year. Considering he could do seller financing I'm wondering if it's an OK deal?