Property Re-Development With Seller Financing Constraints

[Nick Gray]

I find myself facing an interesting financing challenge on a prospective deal that I am considering. I am currently in negotiations to purchase the worst building on the nicest street in a wealthy Seacoast New Hampshire town. I believe that I can buy the building, an old boarding house, at a good price and then knock it down to re-develop the site into luxury apartments or condos. 

One significant problem has already presented itself, however. The owner does not want to part ways with monthly income or face full capital gains tax this year and he will therefore only sell the property with 100% seller financing. I normally love seller financing, a tool that I have used to grow my portfolio, but how do I use seller financing if my intention is to destroy the seller's collateral to re-develop the property? What further complicates things is that I will surely need bank financing for the re-development capital. The seller would need to accept being in second position to the bank, who will be lending several times more than the seller's loan to me. 

Does anyone have ideas on how I can navigate this situation? Maybe a creative structure in which, instead of using a seller mortgage, the current owner sells me the property for a percentage ownership of the final re-developed property? I am open to all ideas...