opinions on this deal I'm thinking about

[Mickey Harrison]

Opinions or suggestions on this deal

Duplex for sale 110k completely remodeled 6 years ago still in great shape . One tenant in place paying 650 and all utilities. Rents could be from 650-700 maybe 750 if decided to do sec 8. ( i own a duplex in the area already)

Owner is willing to finance and wants 10k for down payment.

Let's be conservative and assume house is worth 115k
other side only rents for 650

Insurance 2025 (year) = 169 (month)
Tax 1100(year) =92(month)
Maintenance based off other rental high estimant 2400 (year) 200 (month)

I was thinking of giving the seller his price for these terms or even giving 115k (if he doesn't like terms to get him to agree).
Owner finance 0% interest for 15 years (would go down to 10) with monthly payments of $500 and balance to be paid of at end of term. end of 15yr 20k end of 10yr 50k

I figured

Total rents collected 1300 month

payment 500
insurance 169
tax 92
Maintenance 200
____________________
total cash-flow 339(month) 4068 (year)

Cash to get deal done high end 16k

Cash on cash return 4068/16,000 = 25.4%

In regard to the balloon payment at end of term. I assume
1. since every payment if going to principal I would have enough equity to refinance the property (traditional)
2. Enough equity to sell the property even at a discount and walk away with money in my pocket.
3. Actually pay the loan off with "my own money" (ie rents from other cash flowing properties)

What do ya'll think? Would you do this deal? What might you try to change about the deal?

[Nathan Emmert]

I assumed a $600 payment based on 6% interest thus $650 - 600 = $50 * 12 = $600 a year cash flow.

What would I do? Concentrate on purchase price unless you've maxed out your conventional mortgages. Cash is king, minimizing your cash outlay is your win, picking up a property without putting 25% down. Buy equity in your purchase price allowing you to quickly refi it conventionally, hopefully without putting any additional cash in, maybe getting cash out. That might require offering a higher interest rate (6 - 8%) but if you're only planning to pay it for a year or two before refinancing at 4.5%, it's a pretty small difference.

The goal in owner financing with a near term balloon is to buy equity IMO.