The down payment keeps shrinking on a duplex I'd carry

@thicket I'd argue the opposite on emphasis. The balloon is a problem you can renegotiate when you get there, both parties have reason to. The down payment is the only thing you can't fix later. 8% down on a duplex means the buyer has 27k of skin in a property where one bad tenant turn plus a roof is 20k. At that point walking away costs them almost nothing and your seller is starting a foreclosure at 68 years old. I've held small multi for nine years and the units that broke my budget always broke it in the first 18 months. Take the 10% and give back the half point if you have to.

Buyer side read: someone who can't scrape another 6,800 for down payment does not have reserves. That's the number I'd ask for, not the down payment. Show me three months of the payment plus taxes and insurance sitting in an account after closing. I've been the guy who bought at the edge of my cash and it was fine until the sewer line, and the sewer line was month four.

Two years of self employed returns and a low 700s score is thin for a note you're going to hold for seven years. Has anyone pulled a landlord reference or verified where they live now pays on time?

The trade you're describing depends on which risk your seller is actually exposed to, and it isn't the same risk on both sides of the ledger.

Rate is yield. Down payment is loss severity. If the buyer performs, the extra half point is worth roughly 1,500 a year and compounds into real money over seven years. If the buyer doesn't perform, the recovery math runs off equity cushion, unpaid interest, deferred maintenance, and the cost of taking the property back. That last cost is the one people underprice. Foreclosure timeline and expense vary substantially by state, with nonjudicial states generally faster and cheaper than judicial ones, so your seller's attorney should price the actual local process before anyone decides 2% of purchase price is an acceptable cushion.

On the tax side, spreading gain across years through installment reporting is the usual reason a seller in this position prefers a carry, and interest received is generally ordinary income while the gain portion is recognized as principal comes in. How that plays for a 68 year old with this particular basis is a question for a CPA, and the answer can change the down payment negotiation, because a larger down payment pulls more gain into the year of sale.

One thing missing from the post: what happens if the buyer stops paying property taxes or lets insurance lapse. That is the most common way a carried note goes bad without a single missed payment. Escrowing taxes and insurance through a third party servicer, or at minimum requiring proof of payment annually with the seller named on the policy, is standard and worth writing into the note.

What is the seller's alternative use for 340k? If the answer is a bond ladder, 8.5% secured by a duplex they already know is a different conversation than 9% versus 8.5%.

In the rural markets I watch, 10% down is the normal ask on an owner carry and buyers don't blink. 8% reads as someone who is stretched. Also 340k with a 2,353 payment plus taxes and insurance, what do the two units actually rent for? If the buyer is only breaking even at full occupancy the down payment argument is already over.