First deal! Low income 4plx owner financing!

[Nolan M.]

After a few months of looking I've got my first deal in the works. Unfortunately its 1 1/2 hours away, but its 100k less than similar properties here in the Mesa/Phx area. I figure I can manage it in the beginning and then hopefully find a competent property manager that doesn't charge too much if i need to. Its a 4plex built in 1980, all 2/1, currently 100% rented at $500 each. I'm borrowing 30k from a family member for a down payment and the owner is financing 120k at 4%, 30 year term. Landlord only pays for trash, which is about $50/month, all other utilities are individually metered. One issue that the owner has brought up is that sometimes he has trouble filling the 4th unit, but said that is primarily because his daughter, who manages it for him, isn't always diligent about advertising it. 

So the primary mortgage will be $575, I'll be paying $250 to my family member, and trash, tax/ins will be about $200 for a total of $1025. I think worst case scenario I'll be out 30% for vacancy, CapX, and management which still leaves $375 cash flow. 

Any advise and insight would be great, thanks!

[Steve Vaughan]

Be sure to use a financing medium that gives you title while you pay it off - like a mortgage/ deed of trust.  No Land Contracts or Contract for Deeds.

I also use a 3rd party payment servicer.  Mine holds onto the original docs and handles the amortization, interest and payoff calcs for you and the seller.  I use a local bank that offers contract services.  Ask some local banks in your area if they have contract collection services.  It's paid by auto ACH and keeps records of all payments so there's no confusion.

Good find and good luck @Nolan M.!

[Nolan M.]

@Steve Vaughan, thanks for the tip, I wouldn't have known anything about that!

[Brent Coombs]

@Nolan M., I also suggest you make sure that the arrangement you have with your family member is in writing. Currently you'd be paying 10%/y, but is that intended to be completely interest-free (paid off after ten years), interest-only (still owing $30k after 10 years), or, in between?

Congrats on this find, and your success in creatively funding it. Not everyone thinks they can wander around, looking for $150k properties to purchase, without having any money! Cheers...

[Nolan M.]

@Brent Coombs, Thank you! We have agreed at 6% at a 15 year term, but I hope to be able to re-finance the 30k with a bank or private lender soon so I can find another deal!  Not sure I'll be able to get the same interest rate, but I think it will be more important to have the cash to buy another one.