It sounds like the lender is going to have to cut their losses on the existing owner and foreclose on them or do a short-sale type transaction where you purchase it, but at a value less than what the lender owes. 

You need transactional financing.

The lower valued one's you may want to try a local community bank.

Presumably at a lower rate than I am on at the minute, provided I retire poor.

If you include it, that lowers your cash flow significantly.

Maint/management costs ( 6% on bigger properties where as 2-3 units they want 10%)Many people are buying and living in one since its lower than renting and you are building equity.

The operating agreement hasn't been completed yet, I could lower my percentage.

If we do this, it lowers our price range of a new home, which is proving to be a difficult find with my local market being near the top.

Now may not be the best time to stretch for a deal and accept lower margins just to stay busy.

I honestly want to do this so bad but I always seem to find a reason not to and the reason on this house for me is the lower CoC return.