He states he was paying extra for the area but when I spoke to seller they state otherwise.

If you have extra cash (or can get some from selling/pulling money out) you might ask around and see if any lenders you know will do delayed financing where you buy with cash and fund the rehab up front but then quickly turn around a get a cash-out refinance without the typical seasoning period.

There's an extra office space that I can convert into a bedroom for myself, along with 4 other ones upstairs that I'm thinking of renting out for $800 each (1 bed 1 bath in the area is around $1300 according to rentometer).

My thought is did the power company put that pole in before the cut, or after.If it was after, perhaps the pole goes extra deep, down through the hilly area and below the ground level of the driveway.If it was before the cut, will a retaining wall be enough to hold back the leverage of a big storm, or will you have a downed pole and a bunch of scattered blocks.Leverage is a powerful thing.Cost to move the pole might be less than a wall, but you still have a septic tank in that hillside.If that starts to wash out, it will be unpleasant, but maybe you could move it somewhere else if that happens.Just my 2 cents. 

In my example, purchase was $60k (not UPB), they paid down the UPB ($120k) doing extra payments including any arrears until paid off.

Tenant is also very litigious, so I want to be extra careful to do everything by the book.

Or will I just waste my time and just wait to build up some extra savings and credit?

@Landon Bleau is right...it's not about the number of units but about the SF...plus add for the extra kitchen and bath(s)And your numbers look a little light to me.

With COVID now, it could actually be that the sellers are sick and they do not want to tell the buyer that as the buyer may not want to buy a house where the past owners had COVID.Or the sellers could be concerned with the buyers being sick.Personally I will not allow extra "visits" again after being burned by one in the past...unless I am nearby to make sure it is only to measure or look at something. 

You want to address problems head on.Keep in mind that extra basement storage is of value to tenants.