Seller Financing - How to think through terms

[Carnet Williams]

Hi,

I am under contract on a 24 unit property. The seller currently has a mortgage on the property. He has offered seller financing as an option for us. One issue we ran across is that an appraisal might not come back at the number we need for purchase and rehab. What are some of the deal terms I should be thinking about in a seller financing situation? What are the issues that come up with such a transaction? 

I have estimated $300K in rehab to reposition the property to be a nice cash flowing project. So my thought is that rather than use my cash for the downpayment ($1.1M purchase price) I would use my funds for rehab. Once repositioned then get financing on the building in year 2 or 3. 

Also one other wrinkle, I am planning to roll about $170K into this project as a 1031 exchange. Does that work with seller financing?

Thanks for any insights.