As far as benefit to the seller goes, @Matthew Paul I think you are probably right on the money and regardless of whether they would have preferred to stay in this house rather than move, it is likely providing them some excellent cash flow; and I'd be hard-pressed to come up with a deal that serves both parties better than the current situation. 

Needless to say, many parties are involved, and they all need to be established and verified, or your business will suffer greatly. 

Lenders that don’t require an appraisal will perform a desktop appraisal but will typically have a very conservative view on the value of the property to protect the company’s investment.

This in turn will kill your exit strategy if you are not doing your due diligence and playing conservative.

Got a statement every month from a very reputable, conservative firm.

I am hoping this number is extremely conservative given that our contractors, inspector, and realtor walked it as well. 

So for example I'm very conservative and don't want any debt on them because I feel this hardens them in case of a severe recession.

If that is all ok then get a very good local realtor to run comps in that area to determine the conservative value of the home once you've completed the renovation work(ARV).

And your central point I think, is to use conservative numbers so the deal still makes sense even in the worst case scenario.

Thanks Dennis, I think you're right that planning for a more conservative return would be a good idea.I re-ran my numbers at an even more conservative level:Lower ARV: $800,000Lower income levels (I'm assuming it will take a couple years to get up to full potential income, but giving myself 3 years was a conservative estimate):Year 1: 50k (NOI $1,000)Year 2: 80k (NOI $31,000)Year 3: 100k (NOI $51,000)My ROI numbers come out to:1% (year 1) 46% (year 2) 76% (year 3)This scenario seems like an acceptable risk to me, when the upside seems far more profitable.