Potential Seller Financing Deal in Austin, TX

[Elliott Sanchez]

Hey BP Fam-

I have a potential seller financing deal on a fourplex in Austin and I need some advice. I'm an agent and I represented the buyer on the purchase of this property a few years ago. The property is 100% occupied and it has been since my client purchased it. In addition to being in an area with high occupancy (like most of Austin), it is also in an area that has seen good appreciation, about 3-4%. My client owns the property free and clear he generates a 9% return on his investment. The trouble is he has had a terrible time with property management companies so he wants out. I approached him about purchasing it with seller financing, explained seller financing, and it has peaked his interest. Since I have never put together a seller financing deal I have several questions about how to structure the deal. Conceptually I understand seller financing but I don't have the experience, yet, to structure a deal. Here are a few of my questions-

1. He is asking for a interest rate of 9% and I know this is high. I understand it is all negotiable, but is there an average? Or, are all deals structured differently? Is it possible to pay more for the property for no interest on the loan? 

2. Is there an average loan term? I was thinking 5 years but I think the seller may prefer a shorter term. What risks are associate with a shorter term loan?

3. Is 5% too low of a down-payment?

4. Market value is $260K. If I paid over market value, let's say $280K, with a 3-5 year term, and 0% interest rate; would this be a good deal? Or if a 0% interest rate is out of the question. How about an offer of $280K, 5 year term, with a 5% interest rate? Would this be a good deal?

5. Am I missing anything?

I guess I should mention that I would be cash flowing approximately $500 a month in cash flow (net-net).

Thank you in advance for reading this long post, and for any advice that will follow.

Cheers!

E