@Nicholas Butler an LLC is not an absolute necessity, but it should certainly be a consideration. You definitely should add an attorney to your team and speak with him/her about that in more detail from a legal aspect.
From a tax standpoint, an LLC doesn't really do anything for you - your share of income/losses is passed through to you and reported on your individual tax return.
If you have any other tax questions, happy to help.
I have a couple things for you. I house-hacked a 4-plex as my first real investment property.
First, in order to get FHA financing, you can't put the property in a LLC. It has to be in your name. FHA loans are for homeowners, and a LLC is a business, so there's a bit of a conflict if a business is trying to take advantage of a programs designed for homeowners. It's not a big deal though, as an umbrella insurance policy probably gives you more protection than a simple LLC (any lawyers can chime in here and tell me I'm wrong).
Since this is your first property, I'd highly recommend having an agent represent you and walk you through the process. Generally speaking, the seller pays all agent fees, but in this case, since it's off-market, you can work with the seller to come up with an acceptable commission (maybe split it). Most agents receive in the neighborhood of 2.5%, so that'd be $5k in this deal. The seller may not be very happy about cutting into his cost, so your purchase price may have to come up a bit if he's going to cover it. The agent can walk you through all the requirements, and will have leads on lenders.
When you apply for financing, the lender is going to dive into your finances and still require you be able to cover ~6 months of costs (held in a liquid asset), and may not count the rent generated from the other units. They'll also require an appraisal to make sure the property is worth what you are paying for it. Start shopping for lenders immediately. I'd recommend starting with local banks. Have the face-to-face conversation with a loan officer and explain everything you're trying to do. If you aren't getting a good feeling, look towards the national lenders, such as Quicken (who are unexpectedly attentive and responsive).
As part of the offer contract, make sure to include a significant due-diligence period to go over all the financials, and a good property inspection from a licensed inspector. You'll want to get all the real operating costs from the owner, including pest, lawn care, taxes, insurance (you can get your own quote), maintenance, utilities, management, etc. If he doesn't keep good records, then you have a bit of a problem, and will have to calculate it yourself.
Finally, with all the information you've collected, you determine if it is a good deal or not.
Based on what you listed above here's an example ballpark monthly budget:
Principle & interest: ~$1,000 ($195k loan @ 5%)
Taxes & insurance: $300-500/mo (depending on your locality)
Utilities: $200/mo for water (most 4-units has the owner paying water)
Vacancy: $140 (based on 95% occupancy at $2800/mo)
Maintenance/Capital expences: $280 (standard 10%)
Management: $280 (10%)
Total: ~$2,300-2,500, leaving you with a profit of around $100/door, with only $10k invested. Not bad. However, since your not going to pay yourself rent, you really just get to live in the place rent free, while your tenants pay off the principle.
You may be able to start by self managing, since the tenants seem stable. However, you may go through some growing pains once you have a vacancy and have to find a new tenant. Trust me, I wish I would have hired a property manager after my first vacancy. Instead, I did a poor job of picking tenants, and it cost me two evictions and lots of lost revenue before I learned my lesson.
@Nicholas Butler I'd second what @Jack P. said about using an agent for your first property purchase to walk you through the whole processes. That being said, you might call a couple of agents in your area (check BP as there may be agents on here in your area or people in your area on here that can recommend someone) and see if they'd be willing to help you close for a flat fee rather than a % of sale (to save you some money) since you already found the property and they won't have to do as much legwork. Good luck!
Don't worry about fudging the rent numbers by paying yourself. It all works out the same in the end. Actually, it may cost you more, since you're tax burden is the difference between your income and expenses. By paying yourself, you would be showing additional income for the property. I'm not a CPA, but if you paid yourself $700/mo in rent, that would look like your property received an additional $8k in revenue for the year. And since rent payments are not tax deductible, you don't get that money back. As you lay it out, if you didn't pay yourself, the property probably shows as a loss on paper. However, if you paid yourself $700/mo, you may end up paying taxes on it (albeit not much).
If for some reason you wanted to establish a record of income for the property being rented at full value ($2800/mo vs. $2100), I guess it may look favorable for a lender when trying to secure financing for your next property, but that's a stretch.
I wouldn't pay myself. It's more complicated, and I don't really see much of a benefit.
As for your financing, the federally-insured programs (Fannie/Freddie/FHA/VA) are 9 times out of 10 going to give you the best rates and terms. They are low-risk for the lenders, so they cost less. People use private lenders and hard money because they don't qualify for traditional financing, either because of the property type, or other circumstances (such as investment properties).