small commercial property owner willing to hold paper

[James Friery]

Hello all,

My pops and I have been searching for commercial properties in college town markets across NY  and stumbled on a 13 unit in Fredonia, NY. Briefly speaking, we liked what we saw and have been negotiating with the seller. The place is a re-positioned motel: One 3-unit house with 10 units in a separate building out back. The house has 4 bedrooms upstairs (being rented out to students @ 1950 per semester, they pay utilities), 2 bedroom downstairs @ 750 per month, and a one-bedroom rented out @ 650 with the landlord paying electric. The other ten units consist of 4 studios (550 per month or 2700 per semester, utilities included), 5 one bedrooms ( 650 per month utilities included) and one 2 bedroom that rents for 800 (with utilities included). The place is being offered @ 575k and the proforma is as followed: 

GSI: 107400

        -$11939 (taxes), $4339 (insurance), $1380 (trash dumpster), $400 (snow removal), $10,447 (Utilities)

= 78,895 NOI 78895/575000= 13.7 cap (pretty neato right :p)

My numbers based on assumptions:

GSI: $107400

       - $11939 (taxes), $4339 (insurance), $400 (snow removal, seems low), $10447 (utilities), 10%  Property Mgmt ($10,740), 10% vacancy/repair ($10740), 5% Cap Ex ($5370 first year, 300*13 a year afterward), $1380 (dumpster), $1000 (landscaping), $300 (accounting fees)

=$50745 NOI/575000=8.8 cap

Additional info: the seller bought the place in 2003 for around 140,000. The building has a market value of 296k based on tax records. 

Without writing a novel here (sorry to all of you helping out!) my initial offer of 462,500 was countered with him holding the papers @550k with 25% down, 6% interest, 20 year amortization with a balloon due in 7 years. This breaks down as followed: $137,500 down payment (without including inspection fees, lawyer, environmental, etc- any advice or insight on this would be greatly appreciated too) and the payments would be $2955 a month. At the end of the term the balloon would be around $320,000. 50745 NOI- $35460 P+I= $15,285 cashflow/137.5k down payment+closing costs= 11.11 COC (high side since closing costs weren't included). In 7 years, that amounts to 106,995, and with time value of money considered that would be significantly less than the initial investment.

Any thoughts? I'd love to bounce back ideas on how to structure the debt, exit strategies with refinance, etc. I'm also an agent, so I stand to make a co-broke here. Thanks for any help!