I can see many people will lost their hard earned money.So a word of caution.

After seeing the condition of the place I would try and reduce the PP.  

This greatly reduces risk on the principal invested because, at worst, the lender owns the property and will look to maximize value by selling the property or selling the non-performing loan.

If it stays on the market for a few months, they'd probably reduce the price, but you may risk losing the property.

If it's an investor you trust, go ahead and earn your birddog fee without being under contract with the seller.  

If I reduce rent by $75 a unit per month, while reducing costs by $100 per unit per month, human nature would be to do everything they can to keep their heating costs below that $75 that I just put back into their pocket.

However, with not having much savings, I am wondering if it is wiser to get an FHA loan with 3.5% down and the required mortgage insurance premium (1.75% I believe)  or live in a rental until I can afford the 20% down payment to reduce my interest payment on a conventional loan.

I tried to offer lower but my realtor said seller/flipper already reduced the price from $79k.

It seems like he is really fighting to get an listings, so if there is a way to reduce this problem a bit, I am sure I would do quite well.Thanks!

Either way it's a win win for all, most homeowners wait to long and reduce there options by waiting.