Your initial balance sheet should look something like thisAssetNote receivable - $10,000EquityDavid Hite - $10,000When you get the payments from the debtor - you will record a portion of the payment as payback of principal and a portion as interestCash - $100     Interest income - $10     Note Receivable - $90There can be an additional layer of complexity if you factor in the account "discount on note receivable" but the above is a good starting point.

And many fly by night investors came in to fix and flip without proper flood remediation. 

Looks like the proper first step to me.

(Not exactly sure if that's what it's called in this situation) there may have been damages the original owner is trying to balance out.

Your tax advantages in such deals are:1) Pass through depreciation of the asset during the holding period.2) Pass through write off on mortgage interest during the holding period.A properly structured deal should make any income during the holding period essentially tax free.

A six month supply is considered balanced.

I would never close without the proper inspections and disclosures though.

The proper response that a realtor should say is "even though this hasn't been getting any action for 60 days -- if you low ball an offer, the selling realtor will let everyone know so it doesn't sell too low".

The supply demand equation is just shifted too far to the demand side and it will take years to re balance that.

Sometimes it can be hard to figure out why someone succeeds and another fails at it.97% of small businesses that fail, do.so because they are not properly capitalized.