That has caused a slight decrease in homes sold. 

This is a value-add Class C deal with significant rent upside for renovated units, as well as upside potential in decreased management costs.

In fact it may even create some more tax return complexity but should not increase nor decrease your tax.LLC are mainly used for liability and asset protection.

Even if you're not cash-flowing, you are going to have a significant decrease in your mortgage!

@Paul Bergagna  no I’m not saying that the conversion would decrease the value of the property as a whole.  

There are credit forums with all of the tips needed to increase your score (keeping accounts open, increasing credit limits to decrease debt ratios, disputes, etc).

Our plan was to make his mortgage payments for several years while we rent the place out, in which time the house value would appreciate while the mortgage balance would decrease, creating room for profit in the end.The value of the property at the time was about $105,000 and he owed $101,500.

Especially for a front-ended note with a conservative LTV.That said, how would I DECREASE the note buyer's return to a more reasonable 12% or so? 

Quick turn overs of units (with a scale of decreasing payout for turnover).  

This is based on being able to increase your NOI buy increasing income or decreasing expenses.