If the house i under water you may have some trouble re-financing it immediately, but there shouldn't be any rush to refi, unless your buddy needs to decrease his DTI to buy something else.The difference between a good deal and a bad deal are the numbers. 

I will also research and take into consideration the area’s present and future employment opportunities, demographics, and historical rental market rates (increasing vs. decreasing).

This decreases the chances of turnover.

The drawback I see, is a decrease in population since 2 000 in those cities and a high crime rate.

My objective is to decrease vacancies and decrease tenant turnover.

I may not have been clear enough on that, however, it appears we are on the same page now.Creating deals through good negotiations, good marketing, good relationships, hard work, persistence, forced appreciation (improving rental income and decreasing expenses), is how one accomplishes hitting the 2% rule (or any adjustment up or down to that rule as market permits or requires).Damn, when am I going to start getting paid for this good stuff like the famous J Scott!!! 

The one thing I would make sure to be aware of next time is the decreased amount of time you have to find a new tenant. 

If you could decrease the gap between your holding cost and your rent, I think that would be preferable to walking away or eating a significant loss.  

This vastly increases the pool of available buyers and should increase price and decrease hold time.

@Brianna Schmidt Great point, I never thought about the decreased payment with a 30 year mortgage being important to DTI.