Obviously the 5% cap rate property is more desirable to the market. 

Me purchasing my 1st home w/ intentions of living in it then selling the home triggered my desire to start investing.

ARV – Desired Profit – Closing Costs to Buy – Repairs – 10% of Repairs – Holdings Costs – Concessions – Realtor Fees – Closing Costs to Sell = Your Offer (MAO or Maximum Allowable Offer).ARV: After repaired value or what you think it will sell for once repaired.Desired Profit: This should be taken off the top first.

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Its also a chance to re qualify them financially to see if they are tenants you desire. 

What would you suggest for converting a hesitant lead with an obvious need and desire to get rid of the property in as-is condition.

Not desirable, but if it's really bad sometimes that's easier.

A colleague and I were just having a conversation the other day about desire for multi families. 

San Diego historically has had a great ROI for buy and hold investors so I think it has been an easy market. clearly I think San Diego is a good to great RE market but I suggest you look up San Diego RE appreciation for any duration you desire and calculate the return assuming 25% down.  

What would be an acceptable or desired financial perfornce, costs versus income?