Or they want a rent reduction. 

If you want to update the place you could do it at your own expense (considering the good advice from other investors above) and give notice to the tenants of a future rent increase in accordance with your lease agreement and applicable law where the property is located; pay now and charge higher rents on your next lease; allow tenants to pay and deduct the expense from the rent as a reduction in rent payments for the next 4 months or whatever you decide, etc... etc... several ways to structure it. 

My buyers might consider in the 4's for cap rate but there would have to be big drivers for upside like full but rent is 900 and market is 1250 etc. along with cost reduction savings.

Your MAGI is essentially your AGI (line 37 of your 1040) with all reductions added back in.  

Better they give you a credit or price reduction and you deal with it. 

The crawlspace--get an estimate from a reputable (B Dry) type company, and ask the seller for that amount in price reduction/credit at closing.  

I ended up asking for a 20k price reduction in case I have to convert it back to a SFR otherwise I'm going to back out.

If they usually take long time then you may be able to wait for a price reduction.

There is a chance that this is a pure bluff (There are companies out there that work on the behalf of carriers that simply call on these leases and get commissions based on any rental reductions). 

That way it is a direct reduction in the amount of money you need to bring and would not be considered income.If that is not an option it would depend on your personal finances.