All other 2 beds in the neighborhood are renting for 1200+ so I know it's a fair price.  

Be patient. these are mid-term plays, so you must be prepared to go without the cash for several years.

Is this fair and also, have you ever experienced this grease issue? 

Use those tools they will play nicely in this industry as well.If you ever want a Hard Money tutorial or tips on markets or how to identify a good project then just PM me.

Mass is a good market if you know how to play in it.

My desire would be to tender a contract to purchase the property, pay off their loan while ensuring the owner receives fair compensation and I receive the house.

I think that if you play around with the right deals, you will find that return does increase if you lever up to 50%, but if the debt is negative leverage (interest rate higher than the cap rate, going to max LTV can actually decrease your returns due to this dynamic. 

I'm thinking Sherwin Williams Alabaster (SW 7008) and white windows, and it's fairly common and well reserved in our region.

What is oaklands 'base year' for determining a 'fair return' under rent control?

Yes, this is fairly common.