Interest only seller financing

[Jonathan Chari]

Hey guys,

Just a quick sanity check.

Assuming the seller doesn't have other offers, does offering a low purchase price with very high interest make sense?

In my case, the seller is pretty fixed on $75k. I'm pretty fixed on $50k. I'm thinking about offering something like this:

$7,500 down, $40k interest-only mortgage at 12% (comes out to $24k total towards interest, and we're paying 400/mo) over 5 years.

The seller makes $71,500 total (down payment + $40k principal + interest), much closer to what they want. I get a purchase price of $47,500, which would be less than the value after forced appreciation through rehab. The seller spreads their capital gains out, we get to maximize use of the mortgage interest deduction. 

It seems win-win, but I feel like there's a hole that I'm not seeing.

@Rene Araguz