It's pretty similar to this unit although the outside covered area is a small veranda as opposed to a screened in patio. 

You’ll pay short-term capital gains tax based on your ordinary income.

Brings to mind the dilemma of what to do when tenants padlock the gate to the patio area or backyard.

Bad idea, but just a couple of observations.If you "buy it now" you won't inherit it, you already own it.Your parents will pay tax on a minimum "imputed" interest.If you don't pay the full mtg. when you sell it, presumably after your parents' death, the "forgiven" amount of the loan will be ordinary income.Dream up something else.

.), but the house is a mess: no foundation/crawlspace, needs a new roof, new siding, furnace, floor, kitchen, windows, back patio, etc.

I have 3/2 condo2. bought the prop at $153k - 6 years ago.3. is now worth between $320k(not so comparable recent sale of 2/2 in the same community) and $385k(redfin estimate) - my unit is specially nice in the community since it is a ground floor unit with one really huge patio probably equivalent to 2 bedrooms inside the unit.4.

People put their rentals in LLC's because the tax on rental income is different and lower than ordinary income.  

Tax court is littered with the corpses of developers who tried to 1031 their development project and got stung with ordinary tax as inventory. 

Bottom floor garage which was very nice and units with patios at edges. 1 Laundry room.

Also, keep in mind that there are New DCA Laws in New Jersey making significant changes to the definitions of "minor work and ordinary maintenance."