At this time I had to pause but decided to return the security deposit (which I still have).  

Concerning your situation, I would ask for a double security deposit to cover the credit scores and allow them a few months to pay it. 

The seller is willing to carry 20% and you have 10%, the question is, what is the security that the seller wants?

(Yes, silly Banks, but can you see where they are coming from, when EVERYONE will tell them that THEIR newly acquired property just happened to be the bargain of the century, so please lend the FULL purchase price, even though it is the only thing that can be put up as security)?

With a large downpayment, it will be much easier for you to secure financing.  

Hi Ben, actually we talked and I ended up working with Donny Gothard at Security National Mortgage Company and have been pretty happy with their 7 points 2% temp to perm program thus far, aside from hiccups along the way with processing from RedDoor who does the temp through them. 

I get the general idea of why a cash offer is better, it's quicker, more secure, probably won't fall through in escrow, can display POF.But other than that, if you are underwritten and already approved for a loan amount, what's the huge difference if the seller still is going to get the same amount of money in the end, say $2M from a cash offer versus $2M from a person borrowing.

The area is zoned for a max 4/5 stories with 15 units total, 12 of which are market rate.Construction financing is secured as I have a relationship with a hard money lender who is interested in financing the project, but would need to assume the property next door to move forward with a construction loan.

But using a year lease will secure the income, or your right thereto at least, for an entire year.

As someone with limited capital who is looking for a MFR for his/her first purchase, I don't really see how this financing option could be a bad thing; especially if, like me, your focus is on cash flow.If I pick up a MFR on a 5/1 or even 10/1 VA loan, recycle the profits to bulk up reserves and equity then I'm paying less to make my property a more secure investment.