If you go this route, buying a 5-10 unit commercial property offers the chance to scale quickly and diversify, though commercial real estate comes with a learning curve and stricter financing rules.

The estimate rehab budget was $133K and I gave him roughly $30K to start for various deposits (Roofer, Windows, Framing, Etc).

The repair work was estimated at over $10k, including foundation work, so I used the escape clause that their contract had in it.

Between now and then you can really crunch the numbers on rent vs. costs and decide how much negative you can stomach....at worst you still decide to sell in the spring and maybe it's a $40K loss instead of your current estimate. 

It might help you out if you're a hammer swinger type guy who can produce workmen like quality results versus homeowner DIY results.Someone who has been in this business for awhile , and brings a lot more knowledge , and contacts to the deal we'll have a lot better chance at performing a turn around on the property then to someone who is new and inexperienced. 

Proformas are just estimates, if it's the brokers proforma or the sellers, I'd cut that down quite a bit

Affordability or lack there of has the best chance of slowing this market but there appear to be plenty of buyers in all price ranges.

Will this affect my chances of finding lenders?

Show them the numbers: the purchase price, estimated rehab costs, projected timeline, and potential profit.

If this was your first year getting a 1099, then there might be a small chance that you could get away with just this year's 1099.....HOWEVER, since you have been 1099'd for 2 years now, then the mortgage lender may request tax returns before extending a mortgage.