John’s approach is likely the best of you’re looking to back out.

and you approach me and tell me that you would like to pay me 120k, and you will pay me $500 per month until you pay me off. 

Some marketing takes a bit of time and money - I'd like to be sure I'm taking the right approach when it comes to a small town with limited inventory. 

That is always a must, and  then approach every owner the same with the same info and data. 

Interesting and I like your approach. 

What are the caveats with this approach?

Assuming, getting a new property under contract before selling my property won’t hurt the strength of my offer if it is a competitive situation, it seems like a great approach.  

How should I approach this potential investment?

My approach is to have solid answers for the questions that are posed by several of the post respondents.

I understand this wont cashflow too much at first (perhaps 100-250 first year) but am curious if this is a good idea for a growth and income approach hoping that this location can make up for the higher price point and lower cash flow for greater price appreciation.