Seller Financing Deal Analysis - Seller Financing Is New to Me!

[Patrick Tiedeken]

Hello! I am looking for help from the BP Community. I am working with a motivated seller who is willing to offer seller financing. I am looking for insight regarding what I might be missing on this deal as I have never done seller financing before. I am sacrificing cash flow in favor of appreciation and not putting money down. The BP calculator tells me my CoC ROI on this deal is 56%. Can you read through the below and let me know what I might be missing or if you think this is a good deal? Thank you in advance!

The offer: $140K with no down payment (seller financing) which is in line with the comps 

5% interest and 30 year term with no prepayment penalty 

Analysis 

Purchase price: 140K 

Monthly Expenses (including mortgage, taxes, insurance, capex 5%, vacancy reserve 5%, maintenance of 5%) : $1,463

Income from rental: $1,600 per month (conservative) 

Cash flow: $136

Thanks so much! 

[Mitch Messer]

Hey @Patrick Tiedeken, welcome to BiggerPockets and thanks for posting this!

I don't see a deal (yet), though...

Here are my concerns:

1. First, your expenses don't include property management, which is a real cost whether you do it yourself or you hire someone to do it for you. In my market PM fees are 10% of rent, or $160/mo. If your market is similar, there goes your positive cash flow!
2. You haven't specified what renovations are needed. I can guarantee that if the seller is motivated enough to accept ZERO down, there is likely a ton of deferred maintenance just waiting to be discovered after closing.
3. It's unclear whether the property is currently occupied. If so, I'd take a good long look at the tenant you're inheriting. If not, I'd make 100% certain that estimated rent is accurate.

The lack of down payment, the interest rate, and the term of the note make me highly suspicious. Be extra careful that what you're seeing here is in fact what is going on!

Protect yourself at all times.