I too echo the sentiment about the high turnover rate.

If you took a $100,000 loan at a 8% interest rate, you would owe a total of $8,000 in interest.

In other words, they have transferred the risk of cancellation - the forfeiture of their monies - to you, so that you forfeit the monies. 

@Chris Strandburg Our properties are renting out for 50% above long term rates on average.

In the current market you may find the third R as the most difficult with current home values and interest rates, but it is not impossible!  

Net income = $39,240Monthly operating expenses are as follows: Trash - $33, Landscaping/yard - $66, Electric - tenants pay, Water - $95, Maintenance $87Monthly taxes about 3KSo, gross expenses are at $41,064If I'm doing the calculations correctly, my net operating income is -$21,888 and cap rate is -3.4%.Obviously the current numbers look terrible for this investment, but I feel like the rent should be raised significantly based on comps (above 2K each unit). 

Rates are high, prices are high. 

The rates are competitive, but they require a larger down payment, usually around 50%, but your client could get in a great 3 fam in Bushwick, Bed Stuy, etc. 

Or can I transfer the money directly from the line of credit to the lender for the down payment?

Usually tenants don't even bother to show up to court for my cases... and if they do, they would almost certainly not get into finer details like this unless they had an attorney.There are attorneys that specialize in evictions and will likely give you the best rates.