The more likely answer is that the seller doesn't want to take the chance that the buyer won't qualify for a mortgage and doesn't want to tie up their property waiting to find out.

The interest is also a little high compared to conventional rates right now, but if you don't qualify for that type of loan--or you are only having to put down a low amount of money--then I think it's not terrible (if it cash flows).

I do see properties cash flow positive out-the-gate on 15 year fixed financing even here in the Bay Area, but it's fairly rare.Incidentally, if you plan on future acquisitions, anything that threatens your ability to qualify for future mortgages is a threat to your income and success.

Also FHA will consider part of the rental income added to your income to qualify for a loan.

Just simply creating a by-pass through checkbook control is not a solution from your perspective (as it pertains to securities laws violation).Please work with a qualified and knowledgeable professional to assist you in how you work with your prospective investors (or lenders).

Did you qualify this investor, do they have assets and the ability to pay, obtain funding or was that an assumption?

Hopefully everyone has good credit and income and can qualify for the loan.

My goal is one year of upgrading to bring the value of the property up, moving and raise the rent to $1750-1800 for both units (My realtor suggested those number because of the area and comps)I qualified by myself for the loan so that it enables my wife to seek a loan for the next rental property.

You also wouldn't qualify for FHA if you weren't willing to live in one of the units.As @Jonathan Gregori mentioned, creative financing is another option with a lot more flexibility.One last thing, if your strategy is aiming for cashflow, then it may be difficult to achieve with a 4-5 unit property for $400k+ in the Sacramento area with <20% down.I wish you the best as you start taking action!

They will qualify you for a loan.