Seller financing of property

[Tom Albares]

I found a property that is fully furnished that would be an excellent STR. The seller stated that seller financing is a possibility. The property has been used by the owner as a rental. It's in an HOA that has depleted its reserves installing individual water meters, and no conventional lender will lend against it until they increase the HOA and recover the reserves.

I contacted the seller, and they responded that after speaking with their tax advisor that they may not sell the property at this point.  I'm assuming they found at the capital gains and depreciation recapture would be due with an outright sale of the property.

I suggested to the seller that if they would consider seller financing, they could defer a large portion of the capital gains, and pay gains tax on only the portion of the principal incurred each year.  They could also develop of stream of passive income on the interest collected, although it would be taxed as regular income like interest is.  

Am I on the right track here with this thinking?