Even if you have two activities ( flips and rentals) under one entity, they will still be taxed differently and having them in one entity does no harm to taxes.

@Raymond Lawton,  The optics and substance of the transaction are in favor of it not being classified as a step transaction.  .  

Curious about this, I spoke to a few buyer's agents I know who work in those small multi-families and they told me that this is simply the market.These agents did not have any idea what their client's long term investment strategy was and were not able to put together any kind of pro forma of substance. 

If they do harm their neighbors you better believe that you’ll get sued for letting this go on.

And the inspection report must come from a certified inspector if you intend to back out based on inspection.No harm in trying, if that is what you want to do, since they will counter with their addendum terms.

No harm.

Cash, or "cash like substances" are the best way to buy and that means you can buy for as high as 100% (don't make a habit of this), and then refi most of your cash out to use again.  

Most likely they are not doing any harm as is.

However I am seeing a small but growing number of accountants who are willing to document an arms length market transaction and be willing to document a substance over form argument. 

There is a similar guy in LA who will get caught too, soon or late, I hope.And very true that dishonest guys are harmful to us.The point is that they won't let you scale too much in any given location.