MFA are involved and recommended Zeker - this thread has me second guessing proceeding with them - any further thoughts on using them? 

When I think of waterfalls, I think of something like the LP getting say 1) a 7% preferred return 2) return of all capital AND then 3) the GP gets 25% split of all future proceeds/profits.  

My thoughts are that if it’s in good enough shape I can sell to a consumer buying with a mortgage company or if needs work sell to an investor for a discount to make a profit.

Even if the units you tour aren't the one you eventually buy, walking around the area and getting a feel for the property types will help you be a much more informed consumer when you are ready to pull the trigger. 

How do I proceed from here to include the labor charges as an expense on my taxes?

This can be time consuming and frustrating to keep track of.

Motion for relief has been granted and green light to proceed with foreclosure.

After those 2 are occupied with tenants I'd proceed to build the other 2.  

You would either need to sell and pay commissions, closings costs and maybe tax on some proceeds OR you would need to pay fees and closings costs to refinance.

Same on the rental side- demand- will be low, so you have to take on less than desirable tenants, which are costly and time consuming.