What I really got from this is that as I knew, the tax code is really complex and I should definitely have a qualified CPA in my team and work out tax strategies beforehand.

It may all work out fine, who knows.

Thanks again for ANOTHER Pueblo "bashing" session after you said you don't bash Pueblo.

Work out all the details with them.  

The Tenant now has the resolve to fall down the stairs and test exactly how strong your lease and insurance is when they claim the landlord's at fault, or disable the fire alarms claiming they haven't worked in months and you did nothing about it, regardless of what your lease says as to who is responsible for maintaining them, god forbid they start an 'accidental' fire and now your insurer is looking to you as to why the smoke alarm was disconnected not wanting to pay out; you may get some of your $ back out after countless court sessions, time wasted and $$$$ for your lawyers to justify it all for you and set it straight, completely cutting hard into whatever investment strategy you may have had. 4 - Just because you put it in a lease, review it with them, have them sign it, have them take a picture with it, get their DNA on it... does NOT make it legal.

Has anyone attempted this sort of value investing, did it work out?  

You can purchase it before it goes to auction but you have to find the current owner and work out something with them.  

I guess you have to look at a worst case scenario, if things didn't work out with the restaurant for whatever reason could you still live off your wife's income at least for a while?

I told her that I was still interested and if she could tell me what is owed on the house to see if we could work out a deal.

Hopefully it will work out!