Too many people want the bigger rent but suffer thru vacancy when STARTING at a price a bit lower will produce a greater annual cash flow. 

Quote from @Scott Tennell: For real estate investors who have worked with private money lenders, what strategies have you found most effective in structuring deals to ensure both parties are protected and the funding process runs smoothly? 

The tenants in the 3 bedroom rental aren't in a protected class but I do not want to get in any kind of legal bind. 

Exactly that’s why I’m trying to figure out a way to take ownership or protect my investment as I’m taking over payments and do not wanna leave it under their name as they can just come back and take it

With some of my clients, I've seen discounts of 30% to 90%.Here is a real-life example: I invested in a $50K note; it was second TD but with significant equity (over $200K) protecting my investment.

So I'm guessing it might depend on your state laws and personal situation. and make sure you know of any sticky items that would eliminate the protection you get from the LLC.

And yes this is a 1 in 1000 situation but plenty of other disasters could happen and having the right insurance policy is huge to protecting down side risk. 

what kind of investment was/is this  a little more detail may protect others if you think this person is a financial predator.  

Regardless of paper returns, as you noted, these are the homes located in areas that suffer first and the most in an economic downturn or other times of distress. 

Hire a licensed and insured electrician there are codes that are in place to protect people and property it is a safety risk that you should not cut corners to save a few dollars on.