Seeking advice on building a seller financed deal

[Melanie Wilmesher]

TLDR: I found a seller who is open to a financing an off-market 5 unit multi family home near a major hospital in Denver. I am seeking advice on making my offer compelling but also making sure I'm not missing anything/potential expenses. Open to critical feedback.  

Two years ago, I found a multi family home on the MLS that sat on the market until it was eventually taken down. It was listed as a commercial property; a quadplex that also had a single family home on the back of the property (so two structures on one lot, zoned mixed use). It's a 5 minutes walking to a major teaching hospital in Denver, absolutely perfect for mid term rentals and long term rentals.

At that time, it was listed for almost $800k, more expensive than other comps. I reached out then about the sellers willingness to finance the deal and he was open to it but wanted at least $200k down. He needed a large down payment because he was paying for a home to be built. Today, I know that project is complete and so a big down payment up front is likely not a priority. 

Skipping to numbers; the quadplex has 4 1bd/1bth units, all currently rented for $1,100/per month. The SFH is a 3bd/1bth currently rented under market for $1,000/month. In total, it's generating about $5,500/month. The owner owns it free and clear and it's managed by a local property manager. The best comp I found is listed today at $900k, been sitting a month and is only a quadplex. The second best comp closed end of 2022 for $830k, 3 months after being listed and a price reduction of 40k.

I believe there is huge potential for this property. The SFH today is dilapidated and undoubtedly needs a face lift but because of the cashflow, the owner's not motivated to make repairs. Comps on distressed properties within a half mile that have sold in the last 30 days are closing in the $330-350k range alone and renting for $2,500/m with basic updates (think original kitchens) or $3,000/m for completely updated 3bd/1bths. Beyond that, the mid-term rent potential on the quadplex units is at the very least $1,500/unit per month once the leases are up (Mid term rentals listed today have a higher potential but would require updates to the units). Furthermore, based on it's location alone, this property could be sold to a developer because of the unique zoning that has no limit to the building height built on the lot (!!!).

So, back to making an offer... I want to make a compelling offer but want to make sure I set myself up for success too. I'm thinking about starting at 870k with 10% down and an interest rate of 5% with a 20 year term. This way, the seller gets 87k in hand, won't pay nearly as much taxes up front on a huge cash sale, will still be generating about the same amount of income as he is today, consistently for 20 years without the headache of managing it or insuring it.  

I'm open to any and all feedback regarding how I'm thinking about this, what I might be missing or how to make it more compelling. 

Thanks in advance.