In my opinion, thinking it out and presenting the rational to the seller should get you somewhere.

Another approach you can use to rationalize value would be to reverse engineer the cap rates of similar properties that have sold in the last 3-6 months.

Sean,Some people are not very rational.

Your market needs to be a HIGHLY appreciating market to rationalize a negative cash flow like that.

If you use those proceeds as a down, you'll need to qualify for the purchase money loan with that loan taken included in your rations.

I know at first my girlfriend couldn't rationalize all the work for just "$200 per month".My girlfriend wasn't initially on board either, but her ultimate dream is to someday own an art studio where she prints and sells artwork.  

The wrong people are late on rent, make unreasonable repair requests, damage the property, and frankly can rationalize any type of behavior they want.For definition C and D would be in average to poor condition, on busy streets, on 'rental' streets (cars parked in yard, sofas in yard, etc), poor schools, grocery store too far away so primary food source in convenience mart.I'm in Austin, FYI

I think doing that also will decrease my debt-to-income ration and help me get a higher loan amount also.

Also, what can I expect as a rational short sale price?

If you do not qualify for the first-time homebuyer, you would likely still be eligible for a high-ration mortgage and 10% downpayment,In both of the above instances, you will be required to live in the home.