So they will use the purchase price as the total amount that can be financed regardless of the value of the home, is that correct?

I am a total newbie, so please correct me if I am wrong.

ARV for a 3 bed 2 bath, 1100 sq/ft totally updated is ~160k.

I've got two parcels  (.37 of an acre total) centrally located in the pedestrian area of a small but growing town in Southern Oregon. 

That makes total sense.

Have you had any General Contractor do an estimated M & L. to make your repairs or updates that obviously need to be done. 

.- Duplex. 3bd + 1ba, 1bd + 1ba- Somewhat dated, could use cosmetic updates but otherwise appears to be in good condition- $129,000I've spent some time looking at rental listings in the immediate area and my rough estimates are that you could get at least $500/mo for the 1bd and $1000/mo for the 3bd for a total of $1500/mo before any updates or renovations.

Owner would therefore face a large capital gains penalty upon selling the asset.Would it be possible/legal to execute a master lease option with a buyout that is intended to outlive the seller such that they can have fixed income for the remainder of their life, and such that their children can receive stepped basis by inheriting the asset that is already under contract (which was obviously written to be binding upon successor's and heirs).

So I totally understand the "apprehension" when you first start.

Hopefully obvious, all of this data is directional, but I needed criteria to begin, since I can't evaluate every single market out there!