Since the now current market value is lower than than what I'm in it for, basically underwater till the market turns or I pay down the note. 

I usually run an 8% assumption on vacancy.Capex and Repairs at 7% are probably ok, although if you are putting $35k into repairs upfront you may have lower Capex and repairs on the unit for the first 5+ years.  

I was hoping to offer a lower price due to current condition and slowly raise the payment back as we get more tenants. 

Now I'm also a GC so my build cost may be lower than somebody who needs to hire a GC.

I believe it tends to give me a slightly lower return, because the sponsor is going to be more careful, and if there is a severe downturn will prevent me from taking catastrophic losses.

While it is difficult in Texas especially at a lower price point, call a local title company.  

Being that an FHA  loan is a government guaranteed loan, only available to Investors who are househacking, it offers a lower down payment and an optional seller assistance. 

If you know a commercial agent that can find sales comps in your area at a lower cap rate you should be able to show appraiser the value.

Pros to this approach would be lower starting cost (I am still saving up money for a down payment) and not having to deal with tenants.

You can borrow 50% or 50k, whichever is lower, from your 401k with no tax implications.