I'm getting a picture of the seller here. I did alot of business with older landlords and turned them into note holders.
Go through the numbers and get all the expenses taken care of, put in a 10% vacancy. Look at market rents and see what the income is before debt service and taxes. That's what you have to play with, determine what you need for management before taxes and an amount as profit for the brain damage. Take the amount allowed for debt service and put that in your calculator as the pmt, plug in 180 months for the term, look at it at 6% and plug that in, then compute for the present value. Is that close to a valid offer? If it's low, start adding to the term to raise the PV, if it's high, shorten the term.
What you are selling is the idea of an annuity income in exchange for the property. I've done many at 100% LTV by selling the financing instead of buying the property so to speak.
Retirees want income, low taxes, no headaches or worries, no more maintenance, repairs, tax return complications, cleaning, advertising, tenant collections and issues. Provide the highest income you can to them at a rate higher than they can get in CDs or other simple investments and you'll get thier attention. In reality, an 80 year old, while they do care, they will view what they will be getting over the next ten years at a higher payment more favorably than a smaller income for thirty years. We aren't talking big money here, but a hundred dollars more is always better.
Try for a fully amortized note, try hard not to go with a balloon less than ten years.
Another aspect of doing business with elderly seller, make sure you ask the seller how the deal will fit the needs of his family!!!!!!
Very important IMO and past experiences. (Especially in a small town). I assure you, that if you get a steal of a deal or even a decent deal and that seller has some kids that don't agree.....well, I've seen deals recinded by a judge a year later! All an elderly person needs to do is say to a judge something like.....no, I didn't really understand all of that, he seemed like a nice man and he told me so much I thought everything was okay. You usually lose, after all he wasn't represented, he didn't draft the contracts and he acted without the knowledge of his family. Anyway, in getting the family involved or aware, make sure you don't make it appear that you need the family's approval for the deal, that will insult the owner as not being in charge of his own affairs.
Best approach is to ask about family, what the kids do now, just be friendly and ask what they think of him selling the place. Are you sure they don't want it? Just get a good feel for the deal and see how the seller reacts. If the seller is open to having the family there, I encourage them to do so, I have faired well when I showed an interest them and the family.
With seller financing, I have also set the note and security agreement up with contingent beneficiaries, you can name the kids as a POD or to a trust. This has two affects in the deal, one it demonstrates that you are trying to cover thier concerns of security, but also, it complicates the marketability of the note, keeping the note in play while the seller still walks the earth. This is a benefit to you but also to the seller if they are thin on other assets. If they really need to sell the note, it can always be modified and sold with your signature.
The market value of a note can cloud the qualification process for people needing medical assistance, it's based on the market value of the asset, so if the asset is not marketable, the value may be dismissed entirely by law.
Play it by ear, some old pharts are hard nosed, but if this seller is offering assistance after the deal, he loves his property and hates to sell the memories. You might even ask him if he's be willing to help you with things and pay him! Make him feel like he will be a partner and still be connected to the property. I bet he won't take the money.
See how this approach fits with your valuation of the property and make a determination accodingly.
You can't let your empathy cost you, but you can pay more if the terms are right for a long period of time.
I didn't mean to turn this into a seller financed rant, but it's all applicable to your deal since he's interested.
Best of luck!
Bill Gulley, General Real Estate Academy