3 duplexes, owner finance

First timer here looking for advice. Looking at 3 identical 2 family homes all one bedroom. Purchase price $52k per home. Rents avg $465 per apt. Looking at Approx. $20k down owner holding $135k @ 7% for 15 yrs. All looks good on my end, please let me know the pros and cons you have.



Hi Steve,

Here is the way I see this deal:

Gross Rents: $2,790
Operating Expenses: $1,395
NOI: $1,395

Debt (including your down payment) $1,402
Monthly Loss: $7

Personally, I would not go through all the hassle of dealing with tenants and the million other issues of being a landlord to lose money each month. Even with a 30 year term, this deal is still too thin for me. With a 30 year term, the debt would be $1,038, which would mean the positive cash flow would be $357 per month, or $60 per unit per month. The problem is that the price is too high. A price of about $120,000 with a 30 year term would give you a monthly positive cash flow of about $100 per month per unit.

Good Luck,


I would agree with property manager that as stated it isn’t a good deal. There are two things that could happen to make it a better deal:

If you know there are things that you can do to increase rents - for instance you are certain the rents are well below market and could be raised significantly. This can’t be an “I think I can.” It must be an “I know I can.”

Get creative on the financing. Maybe do a 20 year loan, but the first five years are interest only. That way rising rental rates in five years will be able to handle the higher debt service.

Cut the price. I would buy it no question at $120k, and look hard at it for $128k but $155k is too much for me.

They key is how much the seller is negotiatable and how much:

I’d actually bid low to see what happens: $115k, $20k down, 20-year loan at 6.0% interest.

With a goal to get $125k, $20k down, 20-year loan at 6.5% interest.

Then you’ll have a strong CF and ROI.

That ^ is a quality response.

I have nothing to add, other than the appreciation for good feedback on options to make the deal better. Of course, negotiating is the case in almost every deal, but not everyone thinks of multiple options when they are having the “stress” of wanting to buy the property and being uncertain if it’s a good deal.

Salverston has pointed out options to take what is not necessarily a good deal now, and increase the probability of it being a good deal in the near future - without passing up the deal entirely because it doesn’t fit.

That way rising rental rates in five years will be able to handle the higher debt service.

I would be very cautious about buying a rental today and hoping that rent rates will be higher in 5 years. Rents may be higher in 5 years, but expenses certainly WILL be higher in 5 years. Increasingly, the government (especially local government) is finding ways to tax and charge fees to those evil rich landlords! In fact, rents in five years MUST be higher if you are to keep up with the increasing expenses.


I would not try and get the seller to lower his bid, extend the credit terms to 20 years, and lower his interest rate to a ridiculously low rate of 6%.

-7% is a great rate (I will take that rate all day).
-15 years is great for seller financing. Usually 5 years is the max a seller will want to hold a note. No one will want to hold a note for 20 years.
-The ONLY problem here is the price.

The goal here to me is to get the price down. There’s only one way to do this. Put a bid down, and walk if they don’t like it.

Propertymanager is 100% correct regarding speculating about money 5 years from now. For example here in the DFW area Dallas County is charging landlords for a permit to rent their investment properties and it has to be paid EACH TIME you rent the property to someone new. The way they know is that you cannot get the water turned on without providing the permit. Right now it is only Dallas County but it probably won’t be very long until Tarrant County and Collin County (the other counties that make up the metroplex) follow suit. So in your case if you had to change renters in each unit every year or every other year all of your profit is gone. And bdub you are correct there is a LOT of GREAT advice given out on this board. I am proud to be a part of it.

For example here in the DFW area Dallas County is charging landlords for a permit to rent their investment properties and it has to be paid EACH TIME you rent the property to someone new.

Do you know how much that fee is? Just curious.


Someone was mentioning that for another city as well, not in TX. I forget where, I’ll find the thread. They weren’t using water to enforce it though, genius on their part. That is of course if the landlord isn’t always paying the bill, in that case I guess there’s no way for them to track it.


Here is a link to thread in which it was discussed on a board local to DFW. I never folowed up on it, but there are email addresses and such of people you could ask.


Thank you for your responses.

Not sure if this matters or not but my reasoning to purchase these duplexes right now is more of a tax shelter with the CF later as I get closer to early retirement. That is why I am only going with a 15 year term. My job income can support any shortcomings they may have for a few years.

Any thoughts?


This is not a terrible deal. Almost everyone could afford the $7 negative cash flow. The real question is why do a bad deal when you could do a good one? Why lose money when you could make money? I think you’ll find that taking money out of your pocket each month for the privilege of dealing with 6 low income tenants will get old FAST!


Thank you all for the previous responses and it has made me think about what I thought was a good deal. I have recalculated my numbers and tell me what your thoughts are on this scenario

$45,000 each X 3 =$135,00
$15,000 down
$120,000 owner finance for 20 years @7%

Thanks Again,


That leaves your mortgage at $930.36(P&I) a month. This is around $400/month positive cash flow off NOI - so this would be good in my book.


Well, obviously the deal is a little better at $135,000 than at $156,000. However, just remember that you still need to account for the opportunity cost of that $15,000 downpayment. When you are putting money down, you are really buying the cash flow with the downpayment. Therefore, I always consider the total purchase price in the mortgage for evaluation purposes.

With that being said, here is how I would evaluate this property.

NOI: $1,395
Mortgage: ($135K, 20 yr, 7%) $1,046
Cash Flow: $349 per month or $58 per unit per month

That is too low for me, but it might be ok for you.

At $58 per month, how many units will it take to reach your goal?