Look at the thumbs up on your answers. Jim is right. Something that hasn't been mentioned (disclaimer: I'm not a tax adviser or able to give tax advice) is that the IRS looks at a landlords rent in comparison to market rates. This is what TurboTax says:
"The IRS MAY DISALLOW part of your deduction, if you do not charge FAIR MARKET RENT for your area."
Then TurboTax lets you look up median rent charged in your county.
We just bought a two flat with your same situation. One tenant had lived there 7 years without a rent increase. Our final negotiations with the previous owner were delayed because he was IN THE HOSPITAL and too medicated to respond. We bought the property with POSITIVE CASH FLOW.
This is an excellent opportunity for you to buy the property. Talk to a loan officer, talk to a tax adviser, talk to a financial adviser, talk to a real estate agent, talk to a real estate attorney, AND TALK TO THE LANDLORD!
I bet (I don't know, though) that you can get a loan for 70-80% of the value of the property, get a second mortgage for 20-30% from your landlord (owner financing) and come out ahead of the game. If you do this, don't forget to get a home inspector too.
I just looked at your profile and you are in Largo, FL. The median rent in your county according to 2006 TurboTax for a 2 bedroom is $838 and for a 3 bedroom is $1079. Looking at multi-family homes listed for sale in Largo, I think you could do this.
DEBORAH: Florida doesn't have rent control does it? The landlord can raise the rent that much, right?
Please let us know any other details that you feel comfortable in sharing (such as your current rent, asking price, etc.). You did come to the right forum. You will get lots of help here.
Good luck and keep us posted.