He needs to sell because can't afford payments, had a lot of bad things happen during the year (in the house), and has found a job out of state to get away/start over and just wants out (whatever the reason, he is motivated). 

Also if we do reason with them and are  able to get them to terminate the lease how do we redustribute the security deposit?

Or would this for some reason not affect the value meaningfully?

If you are just starting out with a few houses there is absolutely no reason to skip out on the ability to finance a great little portfolio because of liability fear.

His fee is reasonable and he has a very thorough screening process for finding good tenants. 

. - For new construction, what is a reasonable construction cap rate?

If you have any other reasonable plans, I am still very much willing to listen."

Yep ... the fact that it is very niche, requires specific knowledge that not everyone has to spot things that nobody else even knows how to look for, and capital intensive is the very reason I'd imagine it works so well ... sounds like it would be the type of strategy right up my alley, actually ... would love to chat with you about that more offline if you're up for it Jay, or online is fine too, but may be straying a bit from the OPs original topic at that point.

The biggest reason people don't use an agent is because they want to save money.  

I'm trying to identify a good area with reasonable multi-family inventory - are you finding a higher concentration of multifamily in a given area?