The real acid test - in my view - is how much time will this business take, in term of your personal effort. Is it 20 hours a week? 30? 60? And how much is your personal time worth? Does that match the income you can expect from this business? That is the minimum expectation. Other issues come into it later, like whether you can build the business and make it a true investment, rather than just looking at it as buying yourself a job. But this is the initial philosophy I would adopt.
You state Net Income of $1,900 after expenses, except that you do not state how much Debt Service per month you will be paying. Since you do not list it, I am assuming the Net Income is $1,900, and you still have to make payments to the Seller for the purchase, and pay yourself.
At a price of $199,000, if you put down 20%, which is $39,800, and he carries a note for 10 years at an interest Rate of 7%, the payments you will make to him are approximately $1,848 per month. You are making $1,900 per month in Net Income, leaving you $619 per year to pay yourself. And that is only available to you if no other emergencies or added expenses occur - which is not likely.
One of the big things I would do is to demand that he tell you how he came up with his price. What rationale did he use? My bet is that he is one of those people who decided he wants a price that reimburses him for what he invested in the place, and that is not practical. For one thing, Gym equipment has a tremendous depreciation - it is almost worthless, once it is installed and used for the first time! If that is what he is thinking, you have three choices: The first is to try to reason with him, which may be impossible, since people who adopt this philosophy are not dealing in reality; second, wait until he fails at selling it at this price, and see if he becomes more practical; and three, look somewhere else!