How can I buy a house with seller financing?

[Tyler Blackwell]

Hey guys,

Found a guy through a mailer that doesn't want to "give the house away" (i.e., this is not a wholesale prospect), but he might consider an owner-financed option. He owns the property outright and collects rent but lives an hour away and it's a pain for him to come in for repairs and such. FMV is around 140k and rents for $1000 --could be raised to $1,100 easily. I mentioned the possibility of a market value purchase with principal only payments for 5 years with a balloon after 5. At that point I'd have 20% equity to refi without a down payment, and I'd own a cash flowing rental.

Anyone done anything like this? I know the numbers on this house are far from what people see in Indiana/Michigan/Ohio, but bear with me on these Pacific NW numbers!! What should I know about this type of transaction? How is the deed transferred and all that? Would this deal pencil to you, or rather, what would make this deal work?

Also, is this too risky? I'm assuming the market will increase over the next 5 years, but...