Perhaps a ridiculous question about seller financing

[Carrie Hallensleben]

Hello fellow BPers,

We currently own 3 investment properties and just assumed a VA loan after a lease to buy option with the seller for our current primary residence. That was kind of a nightmare but it finally is all wrapped up. In the meantime, we were offered a townhouse to buy that is right next to our first investment property. All of our properties have been highly sought after and we have experienced relatively low vacancy. We negotiated an agreement with the seller for about $20,000 (or more) under market value. It is a sellers market and prices are rising right now in Kansas City. We will put about 15K into improvements to get the high quality tenant we want.

Now comes financing...Since we have 4 mortgages, it is proving more difficult to get conventional financing. We also have a HELOC that we can draw from up to about 70,000 however, that seems to be considered borrowed money for the down payment. I am working with a portfolio lender and hope to be able to make the deal work. I realized though that the owner of this property is pretty likely to have it paid off so now I am considering talking with her about seller financing.

I would love some input about how to structure that. I feel a bit naive here because I am having difficulty understanding how the interest works. If we were to pay 10,000 down and then finance with the seller 112,500 at 6% or 7% (not sure if that is enough to offer) for a period of 20 years, how would I figure out payments? I looked at a principle payment of $468.75 before interest but then when I looked at interest for the first year, it looks like $562.50 per month. Paying over $1000 per month before insurance and taxes would not be possible. Is there another way to look at this that I don't understand? Anyone that has structured these deals, surely knows more than I do:(  Please help me see if this is feasible. 

Thank you!