Here are a few thoughts and potential solutions:Seller Financing Structure: Since the seller wants a significant down payment and the right to live in one of the units, you might want to propose a leaseback agreement as part of the seller financing.

The lease expired Jan 18 and you didn't propose an extension until Jan 30?

Something your post proposes is that when the RE market goes down, renters will see low housing prices and stop renting to go buy their own house.

Since this likely isn't possible, I am considering proposing that we leave all the cash in the deal and rent it out for 2-3 years.

@Bobby ShellWhat’s the proposed timeline on the 2.5 equity returns?

I was proposing same terms as above but on sale of property but Eventually when the property sells, we propose that the internal rate of return be fixed at 8 %/year on the initial down payment amount for both parties.

I just thought those terms he proposed for someone with no experience were pretty good. 

Personally I spend more time keeping up with changing legislation, Fair Housing Laws etc than I do anything else.

They put out a ton of good educational content and there are quite a few articles around recent legislation making private lending in CA more tenuous both on the origination side as well as on the servicing/foreclosure side.

I know that sounds weird, but don't propose a low or no money down seller finance deal if you don't have sufficient reserves.