Help analyzing a seller finance deal

[Stacey Paulin]

Hello!

I'm working on a seller finance deal and I'm having trouble crunching numbers.

This is a 3/2 with a purchase price of 75,000. 5K down payment and terms are 5 annual payments of 14,000. No interest.

Rent: 900 - 1000 in the area, but I want to be conservative.

Taxes: 1000 per year

Insurance: 600 per year

PM: 7%

Repairs and Maintenance: 10%

Cap Ex: funded by savings acct. that we contribute to ourselves.

How would I analyze a deal like this where there is no monthly payment and no interest? The home needs cosmetic repairs of about 8K.

Thank you!

[Michael Le]

Obviously you will have negative cash flow for 5 years but after that you should be good. But the question is whether or not this is a good deal in the first place. Seller financing should be icing on the cake or possibly a way to get the deal done if you can't qualify for a conventional loan but it should not mask a deal that doesn't make sense.

If you want to calculate the value of you buying with seller financing you can calculate the Present Value (PV) of your deal based on the concept of time value of money being that money paid over time in the future is worth less than money paid now. Using a discount rate of 7% (meaning you think you can make 7% on the money you're not giving the seller immediately by private lending it or whatever), the $70k you're paying annually over 5 years is worth $57,402. So with the $5k down that means you're essentially paying $62,402 for this house. Whether that is a good price will depend on the comps, etc.