Hello BP Friends! Would love any help or insight on this one.

I have a seller interested in seller financing. I told him I would get back to him on the terms of the deal and he was open to negotiation.

Back Story:
The house is worth $200,000 if sold on the market with a Realtor. He bought it for $205,000 so he isn't willing to sell it low enough for me to buy it cash and rehab it. His current tenant is 5 months behind on rent. A family of four. Been rough on the house and it probably needs a major clean up, paint and carpet.

Here is what I was thinking of offering (Open to suggestions)

$185,000 purchase price
3.75% interest rate, 30 amortization
Balloon payment due in 10 years, but no prepayment penalty if I pay it off earlier
Interest only payments for the first 2 years (Give me cushion to deal with the eviction, clean up, etc.

Now here are the numbers for me:
Monthly Payment, insurance, taxes and maintenance- $1265 Per month
Average rent in the area $1600-1700

I have three ideas for the property 1. Hold it as a rental, 2. Lease Option it, 3. Hold it for 1-2 years and see if it appreciates then sell it.

Deal or no deal??? Any suggestions on price, interest rate, etc??