Obviously you are dealing with buying from a hobby landlord that has inadvertently backed themselves into a corner and seriously devalued their property.

There is recaptured depreciation (depreciation is the devaluation of the property over time) as well as capital gains (increase in the property from buy price to sale price).

Beyond small business owners, another casualty of this is the devalued work of those making $15-$18/hr.

What I've gathered is that they devalue much faster than normal houses, and maybe don't sell well?

By lowering your rent you are devaluing your property - good luck trying to get it back to where it should be.

Buying in a heavily regulated area like this can help your property value and attract better tenants...or it can devalue your property and scare away tenants.Personally, I like to err on the side of freedom and try to avoid heavily regulated markets.

We bought them in '06 and they have devalued since then.

The appraiser will get scared and find reasons that are legit (on paper)  to de-value the house. 

For example in commercial if for every dollar in your country is worth 2 U.S. dollars plus you have low debt fixed in the 4's and cap rates in the 8's you do not stand to gain by waiting.If your currency devalues and interest rates rise here and cap rates compress you could lose 100 basis points of return by waiting.    

It seems you devalue there abilities and look at them as a problem rather then a solution.