If you sound incompetent, they will see it, and you will lose them forever.

However, the condo docs state that they have the right to purchase on the same price AND terms and unless they are notified prior to closing date and close in 1-2 days they wouldn't be closing on the same terms as my contract.I'm not really concerned about losing my inspection costs on this.

HELOC'S or cash out refi's are your best bet right now...Who cares if you cash flow a bit less in each one...the idea is to take that money and put it in as a down payment to another below market value property that will cash flow and more than make up the difference in what you will be losing by refinancing...if you have at least 100k in equity that is 5 homes that you can put a 20k down payment on and aim for a 200-400 cash flow on each after debt service and such...that would be an extra 1k to 2k per month!

You don't want to get it under contract, put a huge down payment down, and then not be able to sell it and lose your deposit.

Is he concerned about losing any potential appreciation over the next three years?

I live in Venice Beach so I feel your pain.As far as wondering how the current owners are doing it out here, I believe the majority of owners most likely fall into two categories: 1. owners who bought a long time ago or the properties have been in their families for decades (Venice is huge for this, most owners bought in the 70s when the prices were awesome because Venice was scary to live in but now they are sitting on gold mines and not selling them) or 2. owners who are likely losing money on their properties but in their minds appreciation potential and/or the enjoyment factor of owning in LA prevent them from selling.

It'll change his tune if he realizes he could lose money himself.

You are risking here to have great cash flow but no much appreciation.I have heard of investors selling everything because they had too much trouble with trouble tenants eating their cash flow and almost losing money because of lack of appreciation. 

Losing $400-$600 could cause him financial distress of some degree.

If you don't price in your potential upside, you may lose out on lots of deals to others who are taking into account everything..