Would you do this deal?

[Bud Gaffney]

Hi all!

Would YOU do this deal?

$1,000,000 for 3, 3 families.

Total GROSS rent $10,600/month

Owner financed $1,000,000 at 3-4% over 15-20 years.

Seems like a no brainer. Let me know your thoughts please.

[Michael Ealy]

Originally posted by @Bud Gaffney:

Hi all!

Would YOU do this deal?

$1,000,000 for 3, 3 families.

Total GROSS rent $10,600/month

Owner financed $1,000,000 at 3-4% over 15-20 years.

Seems like a no brainer. Let me know your thoughts please.

 Bud,

I own about 1,000 apartment units (and have acquired way more than that - I sold a significant portion of my portfolio over the years). Some of my best deals are owner financed deals.

To answer your question...without any other information, I will have to make some assumptions. I've been investing since 1999 and actually made more money during the Great Recession of 2008-2009 because I am very conservative with my numbers...so I will make some conversative assumptions.

Assuming, this a C area, I would assume your expense ratio is 50%. Expense ratio is the operating expenses as a percentage (or ratio) of your gross collected rents.

Also, you gave a range of interest rate and range of amortization period. Let's assume the worst case - 4% interest and 15-yr amo. That means your monthly P&I payment is $7,396.87 or $88,762.44/yr

If you gross $10,600/mo that's $127,200/yr

x (1- 50% expense ratio)

= $63,600/yr Net operating income (after all the expenses like taxes, insurance, repairs, replacement reserves, vacancies, etc)

You deduct your mortgage payment and you get a NEGATIVE CASFHLOW property (-$25,162.44/yr)

So, the answer: NO, it's not a GOOD deal and I wouldn't do it.