@Eric LongThese days I am finding that to be pretty typical-even that spread; properties values are fiercly inflated and 'investors' are buying them.

I could see where inflated numbers, missing history etc. would be a common play for sellers.

If the first scenario best describes it, then good luck ever being able to buy it back again in the future (as it continues to outpace inflation)!

I think it depends where you are at, our here a lot of people are setting prices based on really low cap rates, thus inflating the price of the building.

However, the only variables I can think of that diminish over time is the value of money (inflation), and the tax advantages (every year the mortgage interest deduction shrinks). 

However, if I were to put 20-30% down and rent all units (4 instead of 3) my numbers would look more like the analysis I have attached here (based on some of your corrections as well).My biggest concern is that this would be my first real estate purchase, and the 150K rehab is a bit daunting, as I know sometimes that number inflates.

To balance as an insurance against inflation, I own twice the amount of my note investments in real property, leveraged at 50% LTV.

In this case if you can achieve the best scenario, then @ the five year mark (not counting inflation) you are looking at a 30.82% IRR...not including equity.

Since new landlords would only be able to increase rents by 5% plus inflation, is it even more vital to make sure that rental rates are adjusted properly?

What they did was inflate a ball to plug up the main sewer line, removed my toilet, and then filled the sewer system up with water to the slab level.