Justifying Seller Financing with higher purchase price

[Kyle Davis]

Hello All.  I'm new here at Bigger Pockets.  Love all the content and blogs.  I got a question for experienced real estate investors.  I'm negotiating  a multi-house deal with a property owner that is retiring and wants to cash out via selling all his rental properties.  We are negotiating a purchase price on 9 of his properties in the town I work in.  The issue is that he wants full market value for all of his properties, but he will do seller financing via contract for deed and I need to basically only put in $5000 as a "good faith" down payment for all the properties.  After doing the math, without raising rents it will only cash flow all together at around $400 a month, which to me isn't very high considering the $450,000 purchase price.  I can probably talk him down to around $400,000 which will free up another $300 a month and raise rents to get it to cash flow at $900 a month.  My main concern, though is if it's still a good deal to purchase a small portfolio of homes at near market value just because the seller will finance it.  (For the record, I've been acquiring all my current properties at 75-80% TOPS of their After Repair Value).  Thoughts?  Thanks!

[Ned Carey]

It depends on many factors. An example would be how much do you have in cash reserves? On paper you are making a 100% return on your money. Most of the issues go to the risk of the deal. How much risk can you tolerate. 

With owner financing is he charging above market rate interest, below  market interest or perhaps no interest at all. If he is charging no interest and all your payments go to principal, that is a very different situation than if he is charging 12% interest.

You say It cash flows $400 a month. How are you defining cash flow? Are you talking net after ALL expenses? How did you calculate those expenses?