People are paying well over asking routinely and have lost sight of whether it is a good investment because many are simply buying to as a 2nd home to escape to on the  weekends.

Or go with my gut and simply cover it with fresh vinyl wood planking.

Simply put he was an investor as well so I figured he'd know more of what I'm looking for and need. 

In response to low balling, simply the answer is no.

I like the option of being able to simply pay back at a slightly higher interest rate. 

If things don't work out you simply terminate your leasehold interests, but if things do work well and you enjoy working with the current owner you put yourself in an ideal position to put very favorable seller-financing in place down the road since you are the one that has been managing the building, removing his tenant headaches, and already sending him a check each month.

Assuming everyone is being friendly and you can do a walkthrough and the home is in the same condition meaning nothing to deduct from the exsisting deposit you can simply do as you suggested, refund the exsisting and collect new deposit and start over with a fresh lease. 

It could be they have something else going on (eg illness) or simply haven't gotten around to it yet.

So you are best to simply look for something that you can improve and turn into more units under the BRRR. 

If you make an extra profit some months do you market extra with that or simply treat your self?