You will lose one of the best benefits of the real estate industry, appreciation.

The borrower gets the benefit of having access to capital fast and the lender gets the benefit of charging a higher interest rate and not having to pay taxes on the profit.

Seller will be taking a 30k+ loss with this route.325k with 50K down to seller, 3 years of payments $1600/month, and a balloon payment of 215k at the end of 3 years.Benefits to me: (1) 10k less downpayment, (2) with the conventional route, the loan would be at 228k after 3 years of payments, so I will gain additional equity with the 2nd option since I will owe 215k (presumably I will have to refinance at that time).Benefit to seller: she gets over asking price, 50K upfront and $300/month of cash flow.Does this offer and structure sound reasonable?

Can provide all the benefits from a cash flow and tax perspective.

Even if you only averaged 2.8% appreciation annually, which if you've had it 20 years I have no clue how that's true given prices have well more than doubled in that time, youre skipping over the fact that you have been benefiting from that appreciation on the ENTIRE house, not just the % you paid for.  

It’s true that many property management companies are now incorporating tenant benefit packages as part of their offerings.

Here is a presentation I made describing the benefit of doing such vs a regular investment.

Now a-lot of times you buy a home from someone with seller financing and they hold the note for 6 months to season it and then sell the note to another investor or a firm and then it will most likely show up on your credit because these are more sophisticated investors.In regards to the benefits of owner financing you won't have to pay closing costs to a bank.

Real estate investment can be incredibly rewarding, between the cashflow, appreciation, and tax benefits, it truly is the greatest wealth creation tool. 

It will familiarize you with the basic terminology and benefits.