@Travis Weitthoff - I was wondering the same, the seller is a firm that specializes in developing and stabilizing multi family investments on the South Side of Chicago, so I'm going off the assumption that the numbers they gave me were from last years actuals, but not positive.

Hi @Hans Cooke, California has always taken the position that if you sell and 1031 Exchange California real property for out-of-state real property it will still be tax-deferred but they want their "fair share" if you should sell and cash out (pay the taxes) in the future.  

While legally that position may be able to be argued we run into the issues of how did you get it to the property?

We would like to make him the 1st position lien holder on a property that I am purchasing for cash. 

If you think the deal is good enough, you might be able get a hard money lender to take a second position lien against the subject property if you also let them lien your house or another investment. 

If I'm not paying 30% below market value, it's a bad deal.Here's my question: How does an analysis with a -$647.84 Cash Flow / month have a positive $53,189.20 NOI?

Depending on how much is offered, 2nd liens position and guidelines, will determine if they will accept it or counter.

Just buy rental units that have positive cash flow on day 1. 

I strongly believe that even if I buy a cash flow negative property here, it will be positive within a few years.

@Jacob Villalobos, yes that kitces blog is one of the best I've seen explaining the conversion process and impact on taxation.Besides Oumon said he doesn't want to 1031.