The owners are great people and they understand the risk pertaining to the due on sale clause and know that if we miss payments it will hurt them.I went to Escrow today to start the closing process and I was told that they can not do a subject to, but it would be considered an assumption and we would have to speak with the lenders to get approval for that.

We always buy off Actual cash flow and after reviewing rent rolls and actual expenses.Be very careful not to make assumptions about areas or properties simply based on cap rates and even more careful about applying cap rate advice (rate specific) from one market to another.  

You'll also pay yourself for the lending activities, an economic assumption with your opportunity costs.Consider a "Manager's rate of return" with opportunity costs, match the risk assumptions, look at the "break even formula" with the cost of your mortgage.

I think a better assumption would be 20 year loan with 20-30% down at about 5.25%.

I know this is a loaded question, but it seems like I can't get a property to put out a positive cash flow and am wondering if I am doing something incorrect in my data entry and assumptions or if there are really that few truly good deals out there at an advertised listing price.2. is there a way in the calculator to set a desired cash flow or rate of return along with expected financing, income and expenses, then back-calculate the sale price that would deliver these results (besides re-running and editing the sale price myself)?

With an existing mortgage (assuming this is a conventional lender):Wrap Around Mortgage Lease With Option to Buy (2 separate documents)Assumption of Existing Mortgage with a secondary Gap Mortgage placedWithout an existing mortgage:Lease With Option (same as above)Land Contract (in some states this is not valid)Create a Note/Mortgage in the first position then sell the Note off at a discount -OR-Create a Note/Mortgage in the first position and Hold the NoteNo matter which way you go, you are going to want to have a Team (Loan Originator or Originating/Service Company, Investor Friendly Attorney, Investor Friendly CPA and Investor Friendly Title Company to name the most important Team members related to your inquiry) in place to advise and assist you.As a side note, like Steve V. alluded to above, Real Estate Investing is a Business and therefor you should have a Business Plan / Strategy(s) in place beforehand to successfully exit the property when the time comes.

If I make the assumption you are extending the term to 30 years, that payment corresponds to an interest rate of 1.42%. 

Also, last time I asked for a loan on investment property, I wasn't able to get below 5%.Assumptions I used:$800 rent, 4.5% 30 yr 20% down, $50 a month repair & maint, $50 a month misc, 8.33% rental vacancy loss.

What are you basing your assumptions that the area is improving on?

Oh, we usually give them something down, just don't make the assumption that they need 10%.