Contract for deed deal - Good one?

[Jeremy Karja]

HI BP,

This would be my first deal.  We are looking for mainly rental units but willing to do a couple flips a year is our long term goals.

Our mentor we met recently is VERY experienced nice older gentlemen.  First deal he knows the owner for many year and his kids and the potential buyer/renter.  We would be the person buying and doing the contract for deed and giving him some wholesale cash etc.

He mainly wholesales now but does it all.

Here is the deal right as of now:

Price: Hoping to get it for 100k but could be higher depending on negotiation

Current Tax Value: 125k

Rent/payment: We are trying to get him to pay 1200 a month

Property needs about 30-50k of work on the inside.

Comes with about 4 acres and a shed.

Down Payment: We would like to get 20k down (still in negotiation)

Strategy: We would use our cash to buy with a balloon in 5-7 years

Our money will have about a 4.25% cost to using most of it unless we use 50k from our IRA.

The Money: So assume 100k at 4.25% = 355 a month interest.  

                      If he also pays insurance that is our only other cost then correct?  If so we cashflow 845 a month

                     When we take a loan against it for 100k and use the 20k down we pay 735 a month and cashflow 465 a month until he buys it from us.

The rest of the story:

He is a mechanic and this is on a major highway so he operate the business from here.  He recently went through a divorce so he needs some time to clean up his credit.  Older guy that is a little rough around the edges.  He seems to have a pretty strong business.

The risks:

This guy bails and I am stuck with trying to rent or do a contract for deed on the property

He trashes the place even more then leaves and we have to put 50k into a property and hope we can flip it and probably break even or rent it out and we probably break even.

The agreement will be written so current renter/buyer in the home will have ALL responsibility for the property and if he defaults will need to give the property back and lose all down payment and other payments.

My Questions:

1. I don't know contracts for deeds, is this a good deal.  Is my mentor correct on this?

2. Is there too much risk for 4-500 a month

3. Can I refinance in 6 months? (I have a good income, job, and 800 credit score)

4. Did we factor in all costs?

5. What other risks am I not thinking about?

VERY THANKFUL for ANY TIPS