Any thoughts on this deal?

I don’t yet have any property or equity but have finally saved enough for my first deposit.

I’ve come across a property on a quarter acre block with a yield of 6.7%. The vendor is willing to vendor finance 20% of the purchase price at 1% above his interest rate. I won’t have any problems financing the remaining 80% through the bank, so this means that I only need to come up with the closing costs to purchase the property and can keep hold of my hard-saved deposit.

The place needs some fixing up, which should cost about $5000 (I can use some of my savings for this). Renovations should increase the yield up to 7.8% and should give me around $20,000ish equity.

I’ve spoken to the council about the possibility of subdivision and the very helpful town planner there suggested that I would be better off putting another dwelling on the back half of the block (the current house is happily situated right at the front of the block) rather than subdividing. I could get a prefab home on the back of the block for around $80-$90,000 (I’m estimating this figure…. and I’m not sure yet where this money would come from… has to be financed from somewhere) and rent this out for around a 9.2% yield. This brings the average yield to 8.5%.

By this time I would also have equity in the back property of around $40,000. (total equity position around $60,000ish).

My question is: Even though the average yield is still on the low side at 8.5%, do you feel it would be ok to overlook this in a no-money down deal such as this one? Let’s say that the whole thing took a year to pull off (worst case scenario) and the only money I had to put up was the $5k for renovations and $18k deposit for building the home on the back of the block, this would be a cash on cash return of 230% within a year.

Am I way off here in thinking this could be something worth considering? Am still v new to thinking about property like this…