Seller gets 7 percent instead of 2 percent in a bond or risking it in the stock market, he gets his property sold.

It's currently a great way to continue investing in stocks, bonds, REITs etc, when I've maxed out my Roth contributions for the year. https://www.fidelity.com/learning-center/personal-finance/retirement/self-employed-401kQ1.

As rent comes in, he keeps it invested in bonds until he has accrued enough to buy another home.

What makes a self-directed IRA custodian different is that they are not purely connected to the public exchanges and limited to investing in stocks, bonds and funds, but rather have the staff training and paperwork to document the IRA's investment in the more individualized transactions that occur when investing in real estate, notes and other non-traditional assets. 

Do you need to install manholes or fire hydrants.What are the bonding requirements, inspections and CO process.

It can be "safer" buying through a broker who has a good reputation as they will do much of the due diligence and be bonded and insured and regulated, a note holder may not be able to buy back a note if they lied to you.

For a buy and hold investor, anything above a 3% Cap Rate is considered an acceptable return in NYC, as people buy and hold to have the appreciation, and it is almost like buying real estate as a bond (safe & stable investment).  

I'm also a residential mortgage lender in Florida.I personally don't purchase condos for the reasons you listed above... you have much less control over your investment, and control is one of the reasons that real estate is such a great investment compared to stocks, bonds, etc.

@Mike Hangman 3-4% seems low but it's a hard asset that can protect against inflation, bonds are fixed income and depreciate with interest rates rising.

Some states waiting for the 3 years without doing anything will nullify your rights instead of strengthening them because the owner has possession for that time.