@James BlairI do not defer interest I actually will have them prepay it and roll it into the loan amount upfrontDelaying interest will hurt your returns signficantly and if someone is having cash flow issues I would not be lending to them

And if the lender foreclosed on the property a few years ago, but still hasn't tried to sell it, then it could be because there's an issue with title, or perhaps there's a legal battle taking place with the previous owner.

The issue I am facing is that the property is zoned for residential use only, and I am interested in renting out both the main house and the pool house as separate units.

They told you it's not allowed, so don't push the issue.

To address this, we agreed that I would work in the business for six months to verify the financials, which so far align with his POS system.My main issue is that at 23, I don't have strong financials to get a conventional loan at 75% LTV with a ~7% rate, and the seller's lack of financials complicates bank approval.

It has appreciated almost 2.5X of the original purchase price, however the cash flow is typically $25 in the red every month sometimes more with maintenance issues. 

You might run into issues getting financing on it

  #1 lots of issues with condos

That is the issue, I did not feel that I was provided enough specific details, so that is why I was reaching out on this forum to see if anyone has had any direct investor experience with them or any other operator who has deals that are not working out as planned so that perhaps we can learn from whatever mistakes may have been made. 

Only issue is housing will for sure go up $48k in the next two years.