That's not saying you don't acquire equity in the property in the future but the contract or the financing agreement will not have value at any time.I mention this because any default in an installment contract voids the sale, the property reverts back and there can not be any deficiency obtained by a selling lender who funds the transaction with equity.

Seems we also got off on borrower qualifications which usually is the discussion.Seller "qualifications" or more as to it SF being a right solution.Sellers may have issues with a property, such as repairs being required, that may eliminate a property from qualifying.Another marketability issue, competition in the market, SF broadens the pool of likely buyers.Type or style of a property may make it difficult to finance, the lack of comps for a unique modular home or a burm home may require SF to get it sold.Zoning may be an issue keeping a property out of conventional lending, or an unqualified FHA approved condo development may hinder financing efforts.In these case when there is a property deficiency you need to consider if it can be cured, repairs can be made but other deficiencies may not be curable which may require longer term financing arrangements.To the seller, it may be a requirement to solve the selling problem, but if it's an option you need to discuss the benefits, more money over time, better return on the money as an annuity income, tax benefits might be applicable and a quicker sale.The next bridge is, does SF make a good investment for the seller.

It is detailed in my contract that if the inspection reveals material deficiencies, I can cancel the purchase contract and get my deposit back.  

And keep in mind, even though the inspector may be good, he/she cannot possibly point out every deficiency in the property.So if you really want to thorough, find contractors that specializes in their field e.g. licensed plumber, electrician, roofer etc.

You probably can't get title insurance on the property, so if there were any other deficiency you'd be stuck with that as well.

If the sale does not bring in enough money to pay the entire amount of judgment, the mortgage holder can ask the court to enter a deficiency judgment against you for the difference between the foreclosure judgment amount and the value of the property.

With furniture and belongings, deficiencies can be difficult to see.I would explain to the new tenant that they are agreeing to use the original condition report from before they moved in, and get their signature to that effect.I would explain to the leaving tenant that the deposit stays with the new lease and they should work with the new tenant to get any desired refund from them rather than you.Otherwise everyone moves out and you start all over with deposits and condition reports while it is empty.

Finding tenants presents too much of a risk of finding the first breathing tenant and overlooking deficiencies, as the OP seems to have discovered.

In the future, it would be smart to call the municipality and check if there are any code deficiencies.

It's a large 2 story in a multi-family zoning district so we plan to place 2, or maybe 3 units here but the house needs a lot of work - issues that may not allow us to finance conventionally - 100 year old slate roof that is leaking (bank won't finance with deficiency like this unless it is fixed - something I do not want the seller to do), knob and tube electrical wiring (many insurance companies won't write a policy which all conventional mortgage holders require).