Subject to + Seller Finance? / Other structures for this deal?

[Eric Jones]

Hi all,

I have a potential deal on the horizon where I am trying to figure out the best structure. I have a close family friend who is in their 60s and is getting ready for retirement who owns a property with a single family house & 3 units attached behind. This friend lives in the house while he rents out the 3 units for income. The mortgage on this property is about 400K & he has tremendous equity of about 800K i would say. (I am in southern california). I know ultimately he would like an offer to end up in the 1.1-1.2M range as investors have been calling him to sell. 

I feel i have a good enough relationship with this individual and understand where he is at in his life knowing he really is just looking for passive income not a lump sum of cash to pay taxes on and have sitting around. We have talked about the idea of selling his property and I have a feeling I would get the exclusive on the deal if I could make it happen.

My proposed structure as I am still young and would not be able to obtain a loan to remotely get close to 1.1-1.2M total offer.

Subject to his existing mortgage of 400k  and take over the payments. 

Negotiate a seller finance amount of about 800k @ a certain interest rate with a defined balloon payment.

I guess I'm curious what the specifics of the seller finance should be and what is fair in the market, also, what i should look out for and what the best exit strategy would be. Bottom line is if I can tie this up for 1.2M i know I would be able to sell for about 1.7m+ after a few years, or should I cash out refi, what would that look like?

Thanks for any and all advice, if you have any other ideas please let me know.