Request from Seller for Loan Advance on Seller Financing - Math Help
Hello!
Well, this is a brain tickler. So we purchased a retail property at the end of 2022 with seller financing: 5 year term, 30 year amortization, 0% interest. Payments are $2k per month. Three year option to extend for additional $500/month. The entire loan is for $725k, but with the 5 year term, we would pay him a total of $120,000 before the loan is up and we need to refinance (or use our option). We've paid one year, so $24,000 so far.
The seller just asked if we would be willing to give him $100,000 now, and in exchange, he would knock $25,000 off the total loan amount. (Obviously the loan balance would also be reduced by the $100k).
Now, I know this is not a good deal for us, but I can't explain why. And I also can't figure out how to underwrite such a proposal in terms of return. Certainly there would be some break even point where if we give him $100,000 now, and he knocks $X off the total loan amount, then it's a good deal for us. But I don't know what $X is or how to even analyze this proposal.
Thoughts?
Thanks!
Kim