I know that if a cost seg, l would need to back that out of my California return.Your answer seems to confirm what I suspected.

How much below market are current rents?

The investors get much more profit out of the property.Recommend having a very open conversation with your FIL, expressing your interest in potentially taking over the property from him.

Basement square footage is valued MUCH less.

Because it doesn't matter how much you get on a PA if it can't appraise. 

In my home market of Florida, our insurance rates have made it much harder to have positive cash flow on a CRE deal.

The biggest question you need to ask yourself is if you are doing this to afford a property you otherwise couldn’t afford or to save money period, that will lead to very different conclusions about where/if to buy. 

Whatever approach aligns with your goals, I would hook up with a solid team focused on that investment strategy with the experience behind them—no need to pay your dues if someone else has and you can learn from them. 

My focus is on affordable housing, especially mixed-use projects that serve both residential and community needs.

As you look to scale, just make sure to hold/build reserves for when repairs come up and take your time screening tenants as you will find a vacant unit is much less stressful than dealing with a bad tenant.