Help with a Seller Finance Deal

[Susan Oram]

Hi guys, 

I need your help. I am looking to work on my first seller financing deal. I am still new in the REI game, so any and all help is appreciated. I live out of state and would have to hire local property management, which I have in place from another local purchase.

Here are the details of the property:

The property asking price is $45,000 and the "zillow estimate" (i know this isn't accurate, but give me a ballpark) has the houses in the area in the mid 40's to 50k range.  The property is located in Syracuse, NY.

The seller is offering the following terms:

Minimum $10K Down, Amortized over 5 years, balloon payment at 12 months, 5% interest rate, $500 monthly payment. That's a rough estimate.

Is the balloon payment due at the end of those amortized 5 years or at 12 months?  Or is the down payment supposed to be getting amortized?

My thoughts: it's paying retail for a property no room to force the appreciation at this point.  The rents are 750 for a 3 bedroom and 550 for a 1 bedroom.  It appears as though rents could be increased some to a closer market average.  

Thanks for any help, I truly appreciate it!

[Patrice Penda]

Hi Susan,

The balloon payment at 12 months means it is due at 12 months.

The down payment is not amortized.

Essentially the seller is providing you with financing for 12 months and acting as your lender for that period. You'll have to refinance the deal after a year by finding another lender or getting an extension from him/her.

The amortization over 5 years indicates the time frame it would take you to pay off completely the loan the seller provides IF there was no balloon payment. The amortization time frame allows to work out the amortization schedule for that loan. In other words, you can estimate how much interest and principal you are paying every month.

Hope it helps.