The buyer puts a 3% earnest money into escrow, the buyer has an inspection contingency period inspect 7-12days depending on house and structure of your offer, loan contingency period 10-17 days depending on lender and speed. 3-4 days before closing you and your clients do a final walk-through of the house.

In the backyard is an additional separate efficiency apartment.

It was crazy two years ago with Toyota and Liberty Mutual moving their HQs within 1-mile of each other in an 18 month period.

Yeah, no type of lender, particularly a HML, is going to make a 2nd position loan for the down payment.Also, do you know it Actually brings in that rent per month, over a year period....you will have vacancies and turnover, particularly in $600/mo units.  

With this FHA loan, you'll be giving up a lot of control to the lender, cutting your cash flow significantly, a ridiculous ~4.5% annual Mortgage Insurance payment, will be subject to annual audits and regulatory costs, and high up-front fees with long closing periods. 

They are currently doing weekly and monthly rentals (some are efficiency type units).

Sorry for not being specific on holding holding period.... 

1) Do we pay the property tax for the house during the repayment period?

The first option with duct work seems more expensive and intrusive to occupied units.Unfortunately there is no natural gas available nearby to tap into, which is of course my favorite way to heat.Any thoughts or advice in this area would be appreciated.Also curious to know if anyone is familiar with federal or state (we are in MD) tax breaks or incentives for improving efficiency of a building, or converting from oil heat. 

There are definitely some decent efficiencies and economies of scale with starting out with multifamily units.