Seller financing with escrow for repairs

[Brian Piccirilli]

I have my first property under contract currently and am working to make the deal happen. Any insight into my situation with seller financing and possible repairs escrow, or experience with a similar property would be much appreciated! 

I have a triplex under contract for 277,000. It currently rents for 3100. The property has a SFH home up front that rents for 1350 and is permitted for 3bd 2bth, but contains an non-permitted additional 1bd 1bth (garage into bed and bath). Behind is a 2 level garage with 2bd 1bth suite on the second floor renting for 950, and an non-permitted studio apt beneath renting for 800. Because of the lack of permits for the addition and studio apt, the house appraised for below the offer price. Owners are extremely motivated to sell, husband is 89 and wife is 79 and they both know the value but recognize the work needed to be done to bring it to code. They own the property free and clear, and are willing to seller finance. Est renovation and permitting cost = 50k and I do not have the 50k in cash for reno cost. I am hoping they will give me the 50k, or at least partial, in an escrow account. I am confident in my abilities to raise the remainder through private or hard money lending if needed.

My offer to the sellers, $270,000 including 50k in escrow. 6% interest rate, 1 year option to refinance, 5 year balloon. Based on comps and location, I believe the property will appraise for at least $300,000 and gross rents could be 3300 when all renovations and permits are completed.