Owner financing terms?

[Brandon M.]

I have previously posted about a self storage facility I have been trying to acquire, and I am now close with the seller on the terms. They are older and want to sell their properties, yet they are more interested in owner financing than just a straight all cash offer. 

The building I am looking to acquire is a 6500 sq ft block construction shingle roof building built in the 1980s, with a total of 42 garage doors (21  10x30 units with doors on either side so they can be subdivided into 2 units). There is no climate control, security gate, etc, it is simply a self storage building. 

Original ask was $150k, I originally offered $100k cash. They declined but indicated a willingness to take $120-130k, so I countered with 50k down, 120k total, 5%, $1000/month payment for 3 years with a balloon payment at the end. The seller countered my offer with 125k, 50k down, 3 year balloon amortized over 8 years, at 7.5%. Either way I still have the ability to acquire a self storage building for less than $20/sq ft, which is cheap!

Will definitely include no prepayment penalty as part of the agreement so I can pay off at any time with a bank loan if I want.

Part of the appeal of the owner financing is that the property shows ugly on paper, the owners have been showing as little rents as possible (not reporting cash) and showing phantom expenses. As such i would have a hard time getting a bank loan on it now because my DSCR wouldn't be high enough to cover this debt.

My question is, what do you think of these owner financing terms? The 7.5% seems high, but if I can purchase and show profit for 12 months I am hoping I could find a bank willing to loan me money cheaper. Either way the goal is to pay off completely in 3 years so I can own debt free.