My gut is telling me that they tried to hide this from me during the application process and I need to send them on their way. 

I currently have two apartments that I have gutted to the studs and that I am renovating. 

Depending on your gut feeling at this point, you can offer them a new rental application to complete and submit with their verifiable income/savings documentation and ID's for each adult occupant (you want this asap, regardless of when their term ends or anybodies plans are, in case you need to track them down when things don't work out).

One side is vacant and nearly entirely gutted (and has been for quite some time).

Well guess what If I pay 450 for a year’s membership and get a few questionable endorsements only after 3 years in business …..I would get an A+ too…… My gut is usually correct and this has the smell of a scam that will wreck your credit rating based on credit cards……Borrow from legitimate financial people who have been in business for at least 10 years, there is no free lunch.

I am amazed that you had the guts to take that on and I admire your determination to see it through until a successful sale. 

I need the get the exterior repair done first to get the building dry again and then I will be gutting the interior. 

We would love any feedback/help anyone can offer in analyzing this deal, below are the details:Seller financing with a 5-year balloon paymentPrice the family friend is listing the home: $495,000Downpayment she is asking for: $45,000Interest rate during the next 5 years: 3%Monthly installment to the family friend: the balloon payment calculator is spitting out something like 2k a monthRenovations: We think we will need at least $100,000 to make the house livable (its a complete gut but good bones in a great neighborhood)Current comps: somewhere between $600k - $630k (we've seen as high as $700k for something completely redone which this house would be when we finish)The downpayment and the interest rate seem like a no-brainer but what makes us the most nervous is:Will we be able to borrow the 100k for renovation and if so what will the monthly payment on something like that be? 

You have to follow your gut and instincts.

You don't need to gut everything just find ways to spruce it up or make it look modern/welcoming.