For perspective, New York and San Francisco trade at about 11x income. 

But with your dad there to check-in and give first hand perspective on any surprises that come-up during the rehab, you've got a built in partner you can trust.  

How you do the distribution itself won't matter much from the IRS perspective, just have good records.

From a landlord perspective, he seems to have made several mistakes from not vetting his tenants and not requiring security deposits.

If the old tenants leave you can start fresh and raise the rents.

Was curious on everyones perspective.  

I want to take a fresh perspective on it.

@Kevin Barry seems pretty solid from a financial perspective.

Obviously your parents may just want a fresh start with some money in their pockets but if you choose to pursue the property please share the journey on here as I will likely be doing something similar in the years to come. 

These people will have a real perspective on investing in the area and can give you good perspective.