It has drop ceilings which I'm not crazy about, but it's also a 3 bed 2 bath sitting on 4,042 sq feet of what I would think would be choice land. 

He grabbed it and banged against the ceiling where there was some water damage.

Ceilings for cracks/leaks, foundation for obvious bowing or cracks, the systems (HVAC, H2O heater, electrical box) and go from there.

@Jim Welch,I don't do flips, but I would suggest putting large ceiling fans in all the rooms... people LOVE ceiling fans!   

The unit appears to be legal - 8' ceilings, kitchen, bathroom, living room and 2 bedrooms.

There is a a leaky faucet in third floor bathroom which has created damage to second floor's bathroom ceiling in addition to some other possible pipe/water issue as it was mentioned that after taking a shower water was found directly outside of the bathroom on the floor of the third floor apartment .  

Commercial industrial spaces in my city go for about 600k (3000sqft bad/non-central neighborhood with lower ceilings) to 1.6million (5000sqft decent central location, high ceilings). 

In the book he mentions that when he takes over a property that he will put Section 8 tenants in, he immediately takes out the washer/dryer, Garbage Disposal, Ceiling Fans and Screen Doors.If it's not there when the Section 8 applicant or inspector comes through....then they have no reason to expect it.

Internal parts of the HVAC are in the ceiling. 

According to the building code a bedroom needs to have a minimum size, min. ceiling height, ,means of egress, a light, and minimum outlets.