Go Conventional Financing or Continue to Wait for Owner Finance?

[John Baughman]

I’ve been evaluating and trying to purchase a 4 family in a smaller town about 45 minutes from my house (15 minutes from my office).Here are the #’s: (4) 1 bed units, approx. 1000 sq ft each.Market rents are $400 easy in this town.Current rents are $350, 350, 340, 340. Total $1380.Ask is $85,000.

The building has a 70+ year old slate roof on it that I see no reason to believe will be a problem.Wow, by the way.The units are in OK shape, nothing incredible, but no disrepair.The building also has a 3 car garage that is not currently being rented.

The building has been well cared for by a 77 year old who has owned it for 44 years. A real Mom and Pop operator.He loves this house.This house has supported his family for years and he is ready to retire.

Current #'s. $1380 Rent. Vacancy (10%) $138. Tax $200 (Currently $2300/yr), Insurance $100 (Current $1020), Repairs/CapEx $150 (lifetime roof, perfect basement), Property Management $166 (12%, but I plan to self-manage), Lawn & Snow $60. Total $814.

Turn around plan: take rents to $375 each (at least) , rent garage (should be able to get at least $100 for 3 car garage.) This will add $220 to monthly rent – should take about a year. I suspect I can add another $100 in the next year.

I have established a relationship with the owner – and based on the #’s thought it was fair to offer him full asking price $85000 if he would carry the note.$5000 down, $80,000 amortized over 30 years with a 10-year balloon, First year interest only ($267/month) Next 9 years ($389/month).

He’s been thinking about it and trying to convince himself to take the deal for a couple days.He’s in good health, but doesn’t want the note to outlive him.However in the meantime he continues to show the property.

MY QUESTIONS

(1): Is it as good a deal as I think it is?

(2) Should I stop trying to get him to accept seller financing and just go to a bank and get a loan to buy it so he doesn’t sell it to someone else?

I have the $5000 down without moving any money around, but getting to $16000 for a conventional loan involves borrowing against a 401k.So A, I don’t really want to borrow against my 401k for a traditional loan, and B, I don’t really want to use up 1 of my 4 conventional loans for this deal.

The only remaining doubt I have is that it is in a city that is not growing. It’s lost 6% population since 2000, but still seems to have a thriving rental market.

So there it is, BP Nation.Hit me with some questions and share your thoughts.