I'm still getting these rates TODAY from local lenders and I live local to OP. 1 1/2 hrs away.

We do this work out in the west but we ONLY chase deals that have no debt on them .. and you can work for a few months and you might nail one or two of them.. so its a very low probability deal and its belly to belly and the folks your dealing with can be very tough to get them to move to sign anything.However to answer the OP question sure you can do this and you can redeem right up to day before the sale and in the old days in CA when the sale started at 10am and the tax collector opened at 8am you saw all sorts of people lined up to pay their tax's.. so when the sale started you should hear the grown from those thinking they were going to bid on this cool property only to have it removed last second..

On the commercial side, it's a similar story in terms of cap rates (they are fairly compressed, but like any general rule, not the only basis on which to evaluate a property) however this is offset by having NNN leases so increased gen-op costs are shifted to the tenants, and value-add opportunities as a way to "force" appreciation as well as generate additional income.  

They have 80% or more of the investment vs your 20% or less in most cases.So everything you've mentioned in the OP, I would be documenting for them BEFORE they do the appraisal....I leave it in the house and often email it to them too, so they can cut and paste.  

I have a similar building to the OP where I have an attic with enough space for duplex up or add third unit as part of the ADU ordinance and doing some initial investigation if either option is worth it in terms of the cost/work involvedAssuming the work to run the new water line is another 20 - 40k from a few older comments on BP I remember reading through?

Save as much as possible, and wait for a better buying opportunity when I have more money and when perhaps the market isn't so crazy.2) Buy a cheap(er) co-op or condo, live there, and after a bit rent it out or sell it to buy a MFH - but condo's here are pretty pricey as well.3) Keep looking for a home despite the huge competition and crazy market.What would you all do in my situation? 

Plenty of people willing to take on the work an STR requires these days while pushing prices up so high CoC is dismal.If OP's numbers are correct that there are a whole bunch of houses just sitting in that market w/ estimated 68% return, he's either found a gem of a market or he's missing something (STR restrictions on new permits maybe?). 

I think most sets of coin op laundry run in that 2500-3000 range for a set now unfortunately. 

Also, most condos won't take FHA, and no co-ops (that I know of) will. 

That most relevant forum post I could find was from 8 years ago and the OP was in his 20s.