Property appraised for $146k last year (2020) in the As-Is condition of the lower unit not being livable.Status: Off-market property found through direct mail.Seller Motivation: He doesn't "have to sell" but would consider it for the right price.

Offer well over list price with an appraisal gap clause if you can afford it.

Listed at 370K, bought for 360K and the capper was that it appraised at over 390K!

If the appraiser identifies anything in the property that would require work to be done to bring the property to 'move-in ready' condition, they will call that out in the report, and those items will need to be addressed prior to closing.

Someone else who gets involved in subleasing could probably answer better on that but many cases I have seen of it involve someone doing it behind the landlords back, and seller financing will often be the result of the seller getting the buyer to pay significantly more than a property is worth (especially in this hot of a sellers market, every instance I have seen of a seller soliciting seller financing was with a property that was $100k overpriced), unless you find a property owner who just takes kindly to you and doesn't mind giving you a start with it I would definitely recommend getting a third party BPO or Appraisal before you sign any agreement with a seller on seller financing. 

We put 20,000 into it and then had it appraised.

Get a good idea on all closing costs, appraisals, etc. #2: You can refi for a better rate, but again, take into consideration the cost of the loan.

The appraisal fee is a different story as that goes to a third party.

Mine was a 5 year but i just got a new higher appraisal and considering switching companies. 

An additional piece of history, this tenant gave my appraiser the run around for two weeks and nearly delayed things enough to cause me to miss a closing.