@Wei Peng welcome to the site.There is no 1 right or wrong answer to your question.You described several ways of investing that if executed property would all make money & if executed poorly would all loose money.For me personally I look to keep everthing in 1 area to develop economies of scale.

The sprayed loose foam packs down over time and becomes massively less effective; especially if it comes in contact with moisture.

Two people making a combined $177k, there's bound to be some room to increase the savings to get the cash for down payments. 

That's all they can loose.

It has an old coal room that has crumbling paint and some of the walls have loose rocks/mortar.  

Well your not going to want to hear this, but if your breaking even on the cost of ownership, your loosing money.

The appraiser did the best he could and came up with his number.The current owners are in a tough spot because they are bound by that appraisal for 90 days. 

Remind him that filing a false lien is a third degree felony and if he chooses to continue on this route he may be looking at loosing his license.  

Unless you're only doing paint and floors you're bound to find issues. 

Without it,  it is a good way to loose a friendship.Welcome to BP-