I’m considering a deal with an unusual financing arrangement. It’s a low-down payment (10%), owner-carry deal, but the owner is very old and is mostly concerned with maintaining his monthly income. As such, he wants a 10-year amortization at only 7%. The rate is low, but the amortization would make the monthly payment quite high – with current income/expenses, the park would NOT cash flow, and I’d be out of pocket each month. That said, there is plenty of room to raise rents; immediately after close, I would proceed to do that and reduce expenses. In other words, I can get it to be cash-flow positive, even with the high monthly loan payment… but not by much (I think I can get it to a 12% cash-on-cash).
On the plus side, I would obviously plan to refi asap once I turn around the park. The proposed deal would have the benefit of allowing me to get equity into the park, such that after 2-3 years, the loan would be paid down somewhat, the value would be up, and so refinancing should be straightforward, as I anticipate a 55% LTV. With more conventional financing – and a much lower loan payment – the park would cash flow beautifully (50% ROI)
Would you take this financing, and effectively defer an real money for 1-3 years to get to a very solid ROI?
Thanks in advance!