Seller Financing Proposal

[Jacob R.]

Hi everyone, 

My wife and I are looking to buy our first property and would like to get some advice for preparing a seller financing offer. We currently live in Illinois about 20 minutes east of St. Louis and are moving to Colorado in a couple months for a job transfer but have been looking for a property to buy here in our current area before we move. 

We found a 4 plex + 1br cottage for sale by owner that we are interested in and after my initial conversation with the seller, I immediately thought his could potentially be a great opportunity to offer seller financing. (Thanks to tips from BP podcasts and forums on identifying these types of opportunities!) The owner is 81 years old and he is planning to retire once he sells this last property. 

All units in the 4 plex are 2br/1ba and the rent roll is currently $2,610/mo for all 5 units with potential to be increased as his rents seem fairly low on some units. I believe this is could be partially due to the fact that he has 30 month leases with mostly older tenants (His policy has always been that he does not rent to anyone under the age of 50). Building also has common coin laundry in the basement for a little bit of extra income though he didn't specify how much it produces.

He is currently updating one of the units before the next tenant moves in and said all of the units are in good condition but the cottage will need siding and windows for sure and maybe some other additional work to update in the near future or when the tenant(of 7 years) moves out. The 4 plex is an all brick, 2 story building with a covered back patio shared by tenants and the roof is 3 years old.

His starting price is $285,000 to which he expressed that he is willing to negotiate as well. He estimated off the top of his head that his taxes in 2015 were $5,000/year and insurance at $1,000/year which I think may be a little lower than actual. At his asking price this gives me an 8.8% cap. Factor in the property management that I would use, it drops to 7.7% cap. 

Given the above information, can you give me any advice about how to best propose the option of seller financing? I plan to eventually refinance to a conventional and like the idea of seller financing for at least a year to avoid the need for coming up with $50k-60k for the 20% down payment. I would be able to offer him a max down payment of $25k-30k(contingent on when I sell my current residence). Also, I am contemplating what I should actually offer on the asking price since he has already expressed that it's negotiable so any advice there would be much appreciated as well. Initial thoughts were around $250k but wondering if I should or could go lower..

Thanks in advance! :)

-Jacob