The greater ability to repay, the greater chance of qualifying. 12-24-36 months of reserves are a common underwriting condition. - Two appraisals.

I am not someone that condones, or ever believes that someone should buy a property with a rent to own contract, unless they have the credit and financial ability to buy the property when they sign the agreement.  

From the looks of your investments, you have made bad choices or overestimated the metrics so the issue is on the buy side, not the rent or sell side.You are off to a good start in acquiring, but you haven't met your own expectations on either deal which either means you are trusting the wrong people or overestimating your abilities this early.

The seller however does not have any documentation to show he made any reasonable efforts to evaluate the borrower ability to pay the loan.

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I am very new to REI and would like to know if this is a great opportunity to buy in an up and coming area or if the residential properties will negatively impact my ability to rent out my other unit.

You would only have to prove your ability to pay the existing loan and would not be qualifying for a new loan with all of those FHA requirements.   

Since we were discussing bank statements, most lenders will want to see the ability to repay (in additional to having paid on time) and usually a minimum of 3-6-12 months of equivalent mortgage payments in reserves.

If you embrace the ability of real estate to replace your current W2 income job, this could be the first step toward doing that.  

Leverage tends to adds risk, I always recommend having the worst case backed up by, long term job prospects, other liquid assets to cover losses, an/or the ability to take measured risk more than once to even out uncertainty.The richest individuals use leverage to their advantage all the time, but it should be used with care.Zach