Seller Neglect is a Buyers Dream ( but how to make it work)

[Austin Hajjar]

Hello BP Community!

An opportunity came to me from my PM. She has an out of state investor looking to dump his portfolio. Properties are in Washington State and the city doesn't see much appreciation in fact some may say it's a depressed market. I like it, rents are solid meet 50% rule, good blue collar work force (C+ to B-) it's a cash flow market rather than an appreciation. 

Dilemma: Major Capital expenditures! Duplex (4/1.5 each unit) long term tenants (12/15 years) needs the following: New roof $20k. Interior is another topic but tenants don't seem to mind the interior. I'm afraid I won't be able to refi / insure as is. 

Numbers: Seller says appraisal is at $95-100k. I have a duplex on same street and I just fully rehabbed (roof plumbing electrical floors kitchen bathrooms)  and I will only get about $120k appraisal value (due to lack of duplexes available and sales history for comps)

- Seller Mortgage: $69k on it with a 15 yr arm! Right now approx 3.5% PITI @ $667 a month

-Income currently $1125 ($500/625) market rent $1350-1450 combined 

- Seller wants: To walk away with $20k cash

Options: 1) I take over mortgage refi to a fixed and give him $7k cash and dump $20k for new roof

2) land contract with nothing down balloon payment in 5 years to his asking price of $95k and an interest rate of 5% 

Thoughts?