Cashflow Property Advice, Should I Take The Capital or Not?

[Rio328]

I currently live in a duplex in a great market close to the UT campus. I also work as a Realtor in this area with student housing so I know exactly what properties lease for around here. The owner of the duplex I live in is about 75 years old. I asked him what his long term plans for the duplex were and he said he didn't have any and doesn't want to sell in this market. I asked him if he would be interested in doing an owner finance with the following terms and he said he was pretty interested in the idea and would consider it.

Sale price of $300,000
5% down
4.5% interest
Owner finance with 36 month balloon payment. (I have been self employed for a year now which makes getting a mortgage loan impossible without a longer work history)

For the mortgage, tax, and insurance I'm looking at about $2100/month. He owns them free and clear and is currently leasing them way below market value at $800 per side. I know that without any renovations I could get at minimum $1200/side and closer to $1600/side with renovations. I know several contractors that I've worked with as a property manager and priced the renovations at about $15k. Also it's worth noting that both sides are currently on month to month leases.

So taking everything into account I am confident I can purchase and renovate the property to be cashflow positive with up to $1100/month after everything else is paid.

Here's where it gets sticky...

Being that I am self-employed getting a loan for the property is not an option at least for another year and even then it might be difficult without a co-signer which I do not have. I spoke with an investor whom I used to work for as his property manager about giving me some investment capital for the down payment and renovations and he agreed to do it. He is offering me $25,000 with the contingency that I pay him $450 a month as long as I own the property and 20% if I decide to sell it. If I do not pay him the $450 he has the right to the property.

I am trying to weigh the pro's and con's of the situation but I am still unsure whether or not I want to do it and am seeking advice. Please share your thoughts.

Pros:

-No risk of legal recourse. This will be my first chance at owning an investment property. If something goes wrong the Investor simply takes the property. No lawsuits, no foreclosures, no ruined credit. Worst case scenario, I'm right back where I started with some great experience.
-I have full right to title. The home is solely in my name and I get to make all decisions on my own.
-I get a cashflow positive investment property without putting up a single dime of my own money with practically no risk involved. How often does an opportunity like this come along!?

Cons:

-I could end up paying him $450/month FOR-EV-ER. (But how much should I care about this? As time passes that $450 is going to wind up being an even smaller percentage of the profit and campus housing is always thriving in value. Yeah I'm losing $450/month but where else am I going to come up with $25,000?!)

Again, please share your thoughts. I need some direction.

 

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