Derek Dombeck brings up a very good point and I’ll second that educating them on the process of the plan you want to use is the most important part of the deal when trying to convince a seller to use seller financing.

My focus is buy and hold with cash flow being the priority, and a mix of cash flow with appreciation being a close second depending on market.

Secondly, he went on to mention it cost him $300 to heat 2 rooms for one month over this winter, his concern was the insulation.

Secondly, I would appreciate any advice on structuring the payouts and % ownership. 

The property next door is a triplex in a smaller lot,  that was grand fathered in.I wonder if that easement could be argued to provide the square footage needed to qualify for a conditional use permit.

Using partnership treatment to allocate SE income to the spouse with wages and away from the second spouse could produce a lower SE tax liability. 

Learn how to manage your money, get a second or third job, pick yourself up by your bootstraps and if you want the priviledge to own your own home the do it the right way.However, the government, banks, etc.. will need to deploy their money and If the present environment becomes too restrictive, they will need to start lending again.My little house in a community in San Diego, lower middle class 1040 sq ft.  

Back to exposure for a second...

I would love to second @James Wise , as usual - keep those notes in mind.

B) you need to decrease the basis of the property by the insurance proceeds, and loss you claimed. ( combined this equals replacement cost) .Second step is related to the basis-adjustment  of the property: A) As for repairs, for the repairs that have been done so far, you can add that to the basis of the property and start depreciating it.