Seller Financing- Pay more than FMV?

[Brian Schmelzlen]

My goal is to purchase a $3 million office building. In my market, the cap rate seems to be around 4.5-5%, but lets just say 5% for easier math. That means an NOI of $150,000. For purposes of this discussion, lets also assume that the building is turnkey.

Because a $600k down payment is a massive hurdle, I would prefer to negotiate seller financing.  My hope is that my partners and I can get a down payment of $200-$300k and an interest-only loan for 5 years at 4% (if not below).  That would leave net cash flow of $30,000.

Ideally, the seller would agree to another 5-year note when the original note matures. I would like to keep that going until forced appreciation brings the LTV to 65% at which point we could refi with a bank, and hopefully start pulling out cash through refis.

Obviously I would negotiate the best deal I could, but as a hypothetical lets assume that the seller will not sell at a discount. In order to get the terms I want, would it make sense to offer a premium on the purchase price ($3.1 million instead of the $3 million FMV)? That would mean a net cash flow in the initial year of $26,000.