That said, I'm grateful for the alternatives you present--you're keeping the bottom line in mind, so I appreciate your help in exploring options that achieve the bottom line for the investors. 

DM me so I don't lose you, we are not based there (CO-based until probably 2033)

This is a relationship-based business.

What is the $1,700/month based on, and which neighborhood is this?

Consider consulting a real estate attorney or CPA to determine the best strategy based on tax efficiency, future sale plans, and estate considerations.

They didn't pay for it, so they don't take care of it like an owner.Before you make assumptions about costs based on a seller's contribution to improvements, find out what they improved? 

This year I may see if if I can get a construction loan to build 20-30 apartments, then refinance with an asset based lender. what markets?

Our opinions should not make a difference, if you're doing your diligence properly.You'll just get realtors, or real estate professionals, from both locals promoting their area based off a keyword search for posts like this.

We're willing to live almost anywhere in the greater Sacramento area based on what we can afford, provided of course that the property is in a decent neighborhood that has a good chance of attracting responsible tenants.As for budget, I believe we could get a conventional loan for properties up to $600k, but my strong preference is to find a distressed property (or seller!)

In Oregon for instance unless your doing a PUD open space cannot be required and you MUST create lots to specified zoning density.. in other words if your zoned 5k sq ft lots U cant ask for 7500 sq ft lots you must be within 10% of the base zoning.