The con of this though is that the monthly payment is much higher, thus reducing my cash flow significantly (if anything).Since I am somewhat new to real estate, I know there are more variables to consider like appreciation, or refinancing or HELOC down the road.

Has anyone found a way to reduce/limit Japanese capital gains tax in such situations? 

If you screen the tenants well that’s the key to reducing the amount of time spent managing the property.  

Notify the seller of any large issues you find so that it must be disclosed to subsequent buyers which could reduce subsequent sell price and would provide some incentive for the seller to meet you somewhere in the middle. 

@Christian Orellana, It's a great transitional strategy that will reduce your work load greatly. 

Tried to go with Fire and Personal Liability (removing Wind and Hail) to reduce cost but haven't found any offerings.I wonder if other landlords/investors have some good strategies to tackle this challenging environment.

Policies like rent control, zoning restrictions, high taxes, lengthy permitting processes, and more reduce housing supply.

I wanted to get the opinion of others on what the best strategy is to deploy capital back into the properties to in order to reduce our taxable income while also continuing to build wealth.

It yields a higher quality clientele reducing the risk and these areas typically appreciate better over time. 

But you can still optimize portfolio performance while still reducing risk.