The plan is to use the proceeds from this rental to buy another rental property for about $650-700K, plus to pay off the home that they live in now ($260K owed).

Yes, the government pays the Section 8 rent timely, but more and more tenants are having to pay a portion of their rent.

Talk to your banker about your plan.

And it depends on what you do next - rebuild or sell as is or some other plan. 

Why then do they pay $35,000 to obtain what’s basically a sales position?  

Yeah that sounds like a good plan!

However, some investors don't mind this strategy if they prefer not to put a lot of liquid in up front and plan to refi out within a few years of closing (which seems to be a great option with the talks of the FED reducing interest rates this year).It really comes down to investing in a growing market, in a good neighborhood & building a great team to support you.

You may be required to make estimated tax payments when the property sells.It depends on what your 2024 total taxes due were and 2025 estimated total taxes / withholding / estimated payments are.If you pay in atleast 90% of the current year tax or 100% / 110%(Depending on 2024 income), you are normally considered good.You may want to consult with an accountant for more clarification.

Now, you need to figure out how to find deals and pay for them.

Do you plan on renting out your current house or house hacking it?