Should I submit a purchase agreement to the owners for what I feel is a fair price, even if it is much lower than what they owe the bank?

You did all the right things, but maybe you want to try the exercise with a lower cost/price ratio.

If there's no opportunity to lower expenses / raise rents in the near term, I'd walk.

Imagine for 1 second you aren’t the smartest investor in the entire market and maybe someone else has figured out how to make money at a lower rate than you.

Primarily Lower crime areas with decent demand for rentals, ideally C+ and above neighborhoods. 

I am inquiring for some more advice on areas within lower eastern part of CT to be looking for Multi-families for house hacking.

But mostly its about Joe Pesci being forced (by court order) to live in one of his own units for 3 months and having to adapt to a "lower" style of living. 

There are a few other strategies for lowering start up costs that you did not mention. 

@Stella Guan, in general the inventory will be limited but a quick MLS search yielded 18 potential properties below $350,000 in 29 Palms, Cathedral City, and Palm Desert.Part of the reason for the limited inventory is the lower price point.

I know the area pretty well and can direct you to better areas if looking for lower price homes.