I think we need to keep blaming the landlords and introduce additional rent control legislation to fix the issue. 

Biggest risk of seller finance is if the buyer finds bad tenants who don't pay rent and destroy the property, now the buyer can't afford the payments and gives back a distressed building, now the seller has to spend money to fix it up, which could cost more than the down payment he got from the buyer.

Is this something they will be fixing?

Really hate to give up a good amount of the proceeds to taxes and worst yet, have to pay off the BK debt in full with only a few months left before completion.

Then we notify #1 that we have a 2nd buyer with no contingency and they have X amount of time, whatever was originally negotiated to remove it and pay additional earnest money. 

When someone passes away, the assets within their estate are subject to estate taxes if the total value of their estate exceeds a certain threshold (this amount fluctuates based on tax code, so be sure to consult a professional).

They have most to do with the developer and the fact that you have to advance a significant amount of money against just a piece of paper without any guarantee that you’ll get either your property or your money back.There are actually two distinct risks here.

@Gavin Jex seems like they are trying to help you out, but exposing you to tax issues.As @Chris Seveney already pointed out, one of you will be taxed on the 0% interest loan as a "gift".The other issue is that you will get the property at $170k roughly, and then be exposed to capital gains of the difference between that amount and the market value.Highly recommend you speak with an Estate Planner for possible better options.

What is your ROI and the amount paid for a cost seg study?

If you can house hack, like @Nicholas L. said, that is ideal because you will need the least amount down to do it and can get the enjoyment and landlord experience out of it.