Much of this will be mitigated in the proration of the gain that you will get tax-free. 

In addition, I am hoping to understand the most severe risks that come with investing in distressed properties, and how best to mitigate these risks. 

If there are ways to “mitigate all risk” as another Pace follower claimed in the other thread, and “investors will find a way” as you say, then how exactly?  

I'd love some advice on financing options, risk mitigation, and property research.

I recommend assembling a reliable team of professionals to help mitigate risks and support your growth.

You can mitigate almost all of the risk by just hiring an excellent property manager. 

This way, you might mitigate some risks and get guidance for your first rehab.Single-Family Investment for Cash Flow: Starting with a single-family property in a stable, affordable market might align well with your goals.

Risk Mitigation: - Diversify your investment portfolio.

Risk mitigation? 

An attorney would be able to advise on risk mitigation via insurance vs an entity + commercial loan.