How to structure Owner Financing deal?

[Nick Burns]

I am looking to structure an owner financing deal.  Here are the number:

Purchase price: $320,000

Amortization: 30 years

Interest Rate: 5%

Balloon payment: 3 years

Monthly payment: $1717.00

How do you structure/allocate your monthly payment to the seller (i.e. amortize 30 year repayment schedule, interest only, or a larger set amount as principle, etc.)?

For example, if I was following a 30 year amortization schedule then I would pay $46,941 in interest and only $14,900 in principle after the 3 year duration was up before balloon payment. Obviously that doesn't take much of a dent out of the principle and leaves a large balloon payment ($305,100).  If I did interest only, then obviously that leaves me with the entire $320,000 for repayment after 3 years.  If there was another strategy/calculation then the principle could be significantly reduced by the time the balloon payment is due; such as paying 5% interest on the principle for the entire 3 years ($320,000 x 5% = $16,000) and spreading that interest over the 36 months ($444.44 per month), which reduces the principle significantly more by the time the balloon payment is due. Using this method I would have pain $16,000 in interest and $45,812 in principle with a balloon payment of $274,188 instead of $305,100!

What has worked for you?  What have you found to be reasonable for the sellers?

What are your suggestions, I look forward to your input!