Multi-family financing options

[Ryan Wiley]

I'm new to real estate investing and am prepared to make my first purchase. Regarding financing I have a few questions; here's the scenerio:

a) 3 unit property with an 11.25 cap rate -- excellent location: 1 block from train to NYC, near a revitalizing main street, close to many amenities 

b) two units just vacated--all units are livable, but my partner and I want to "spruce them up" and increase rent approx $75-$100 per unit. We estimate approximately $30-$35k in rehab costs

c) we are pre approved with a conventional lender and would need to put down 20% ... this is fine, however, we're wondering if there is a loan option to cover some of the rehab costs? Or is it suggested that we just rehab with cash--and if so, how should we calculate how much cash to invest in rehab?

d) we inquired with the seller about them holding the note. They are agreeable to it, but expect we may be charged 1 - 1.5% higher interest rate. We understand that a percent or two makes a huge difference over the long term, but I like the idea of not leveraging my credit with the conventional lender and using that option for a second acquisition.

Look forward to the input! Thank you