Seller Financing Amortization Question

[Sharon Kehnemui]

OK, so I've never asked for seller financing, but my neighbors are selling their house, and we want to buy it as an investment (potential B&B, but not necessarily right away). We want to request seller financing, in which we'll give them 50% of the purchase price up front, a 25 percent balloon payment in five years, then split the remaining 25 percent over five annual installments (not paid monthly, paid once a year, starting on the first day of the seven month after the contract is ratified). As a seller, would you take that deal, and with what percent financing? 

Let me throw a wrench in the equation: would you be willing to take a lower first year annual payment if the interest were compounding over the five years? It's really sort of six-in-one, half-dozen in the other, but they'd have to be willing to take unequal repayments, growing over the five years. The advantage for us is to have six months to get the business up and running.

To put it in real numbers, I'm imagining a $580,000 purchase price, $290g down, $145g at balloon, and instead of paying $29g and straight interest each year, start at $25g and have it compound for five years. It's a seemingly small difference, and maybe doesn't really work, but just curious if it looks like craziness or a reasonable deal.

Also, I don't know, how one manages a default in the contract language (not that we will, but I'd want to protect both sides)? So guidance on that is helpful.

Thoughts? Thanks