Bay Area creative financing for first deal

[Chris Parker]

A friend's brother has offered to sell me his condo in San Jose (~$650k). I'm a high earner and hungry to get started in real estate, but the cost is a bit of a stretch for me still. I'd like to solicit some suggestions on how to make this work. Also, I'm hoping to get other general advice you might think is relevant to me.

The owner is an engineer and real estate agent. He is a generally-savvy numbers guy and investor. He is looking to simplify his life, semi retire, travel, and use the proceeds of the sale to pay off a different Bay Area property.

The current tenant has been in there 10 years, and I intend to keep her there as she is very low fuss and pays market rate (no rent control).

I have about $55k liquid in taxable accounts, and $50k in a 401k.

I am not afraid of being initially cash flow negative on the property as long as the ROE is high. My personal living expenses are low. My excess earned income, net of taxes and all expenses, is > $80k / year. (I just paid off six-figure student loans.) To be frank I am "underpaid". I could realistically see my earned income double the next time I job hop, and could easily find similar employment if I was to lose my job. I have excellent credit.

Assuming 15% down payment ($98k) at 5%, I'd break 10% nominal annual return with an 8 year holding period if I had only 5% appreciation and raised rents at current inflation rate. I think those are pessimistic assumptions for the area.

He is willing to discuss seller financing, but would prefer to avoid it if possible, just to simplify things on his end. I believe the most important thing to him is allowing him to travel without worrying about property or money. His timeline is "ASAP", which if I can make it work is 100% okay with me, though I wish I had more reserves. I also don't really know how to combine seller financing with conventional mortgages, or if that is even possible.

Honestly, I think the seller is kind-of throwing me a bone here. The property isn't listed, and he is coming to me because he knows I am hungry to find my first deal. He also knows my financial situation. I like him a lot, and I'm the skeptical sort.

How can I make the two ends meet? I don't want to put myself in a position where I am "tapped out" and unable to meet my obligations. Neither do I want to pass up a good opportunity.

Getting my friend, the seller's brother, involved as a co-purchaser is also a possibility. He is a high earner and looking for 'easy' ways to deploy his capital in real estate, while I'm willing to work more for a slightly larger cut.

I understand that complex long term financial engagements with families is a huge red flag. However, I've seen how they handle combined financial and family stress. In short, they're good people and I am willing to do business with them. Yet, I'd prefer to hold the property entirely independently if possible.

For the last ~two years I've been reading about real estate, running the numbers, watching the BP podcasts, and generally getting ready.