Granted, I am very fair with rental increases and never come out of left field with increases.

Normally calculating annualized returns is very simple: sum all of the profits and divide by principal and by holding period.

This might mean that it won't be as simple as having someone buy it cash and paying them with financing.

Furthermore, as the total dollar size of the project increases it becomes increasingly difficult to bake the necessary soft costs and inflated budgetary numbers into the loan (whether it is rehab or new construction). 

So to start this is a master lease and the terms are as follows.Rent paid to seller monthly: $1,500Down payment: $40,000Option to purchase property in 5 years for $175,000Or scenario 2 (whichever seller picks)Option to purchase property in 10 years for $125,000A little about the propertyLocation: Rural area so some rent increases and appreciation but nothing drastic4 units with rents at marketCondition: 4/10 livable but outdated and some deferred maintenanceMonthly NOI: $1,861Market Cap Rate: 9%Is this a good deal or would I be screwing myself?

The increase rent by more than 17% appeares to be to very unlikely. 

That’s assuming simple interest at 8.5%.

This is generally a very simple loan request.

Many years later when we had a much larger case study, we found a huge increase in delinquency and evictions with our residents who had credit scores between 560-580.

They think they're missing something because they don't believe it could be as simple as it appears.