Both the owner and I are unfamiliar with the process of being involved with an owner financed deal - it is our first time not dealing with a bank or mortgage broker.A couple initial questions for the BP community:1)  Best suited to get a real estate attorney or a closing company to handle the deal?  

I am interested in House Flipping for income initially, then transitioning to Buy and Hold for long term passive income and equity.

@Devlin Harding  The key is to line up the initial acquisition financing that allows you to leverage your available capital to do more acquisitions than you can on your own, with a lender that is as invested in your success as you are, and can execute fast enough to give you a speed to market advantage.  

One initial deposit of $1600 to open account & another deposit of $150.

We did't think this was a problem initially since we knew the property would produce enough income to cover the mortgage plus cash flow.

A great way to BRRR is to form a JV with that out of state investor. when someone  has a stake in an investment   instead of being a hired gun,  they will  have the same initiative ad you  to make the investment a success. 

The initial inclination is to keep the properties as rentals, but there are several approaches available to me....

(I don't know, I didn't work it out myself)...Other than the neighborhood concern that has already been addressed, the main reason I would be against your quoted Pro Forma numbers is that at the end of the day, you have only turned your initial equity of $34k into a (hoped for) $41k equity, which is not enough of an increase to be able to continue a "Buy, Rehab, Rent, Refinance, Repeat" strategy.

Thank you all for the information.I probably should have initially noted that I am looking to get my license in Illinois.If I became licensed, would I be limited to how many properties I can invest into for myself, specifically buy and hold and for flipping?

If that is the case, the initial numbers don't support a scalable investment strategy.