Interest only seller finance

[Jaime Rossini]

I have been looking for a house hack and found a 4-plex with 3 vacant units in a great area. Seller wants to finance 10% down 2% interest only payments for 5 years. I was concerned about being able to re-fi in such a short term and he offered an additional 5 years at 3% with a 2% pre-pay penalty.

He’s firm on his asking price which seems a bit high (hard to find great comps). The place has room for value add (upgrades in all units and the possibility to add a 5th unit).

-Is it normal to pay at or above market rate for seller financing and/or terms like this?

-Interest only makes me nervous as I would not qualify for a loan of this amount. However, with the other units occupied we could cover the interest payments and taxes, live for free, and cash flow a small amount.

I know it’s riskier than that 30 year safe money, but I’m thinking that worst case scenario is to sell after 10yrs if I can’t refinance. Based on market appreciation history, I would likely be able to recoup my money and still have lived for free.

Am I too big for my britches here?