Negotiating Seller Financing

[Michael Puckett]

I am negotiating seller financing with the seller on a duplex. I know that the seller is all about the interest and wants to retire - he wants to passively collect checks without any management. He has paid the duplex off. He has offered to sell it to me for the exact amount he bought it for $150,000. Value of the duplex is around $160,000.

Would this be a reasonable way to negotiate (or am I completely misunderstanding the concept):

Scenario 1: Seller decides not to budge on the 8% interest rate so I offer to keep the rate at 8% but to purchase the house at $125,000 in order for him to make his interest and keep my monthly payment low enough to have a high cash flow on the property. Meets his needs of collecting a big check on interest in retirement and meets my needs of cash flow. Also gives me a great deal on well kept duplex.

Scenario 2: Seller budges on the interest giving me 6% but keeps the price at $150,000. This keeps my monthly payment equivalent to scenario 1 resulting in high cash flow and keeps his property priced at fair market value.

Which scenario is better? I like scenario 1 where I use the leverage of his desire to retire and keep the interest high resulting in cash flow for me and immediate equity in the duplex. But maybe I am looking at this backwards and thinking of interest all wrong. What do you think? Do you have another negotiating tactic I should try?

By the way I have a relationship with the seller and we are friends. He is on the end of his real estate career while I am trying to get started. He genuinely wants to set me up to succeed.