When we had a broken water pipe in our concrete foundation slab (will never buy another house on a slab - lesson learned) and the house needed water remediation we discounted our tenant's next monthly rent payment by the amount of the hotel stay after they provided the hotel receipt.

As far as some general criteria/thoughts:- My workplace is in the Cobb/Vinings area and I would ideally like to be a < 30 min drive to work (though I don't mind if its up to 1 hour away since that is my current commute)- I'm interested in using a FHA loan to put ~5% of a down payment (3.5% down pmt + 1.75% upfront mortgage insurance premium)- My target all-in purchase price range is between 200k - 400k - I would prefer to live in a 'A' or 'B' class property that I could rent another unit to a young or established professional/college or grad student- Just from discussion with my friends, a lot of them seem to dig living in areas like Midtown, Buckhead, Virginia Highlands, Brookhaven, Lindbergh.. how feasible would it be for me to househack in any of those areas and expect to generate a decent return in the future once I move out and rent out my unit?

This is common - and there are several groups in B'ham that do it so it, so it is a tried and proven technique - however it's not realistic to expect to find $60k houses that you can buy for $900 and then sell it for $25k without rehabbing it. 

Expect 6.5% - 9% for a fixed rate for the entire term.   

I have a lot of confidence of on-going short-term rent appreciation (next 5 years) but less confidence of significant on-going property appreciation (I expect a leveling off but am not real confident of any prediction).High end homes (bigger and more expensive) have worse cash flow than middle class or working class homes.Note a small multiplex or your 16+ unit will experience similar rent and property appreciation to your SFR and have better initial cash flow (it will be poor initial cash for San Diego but increase with the rent appreciation).To summarize, SFR are not the best buy n hold investment option in San Diego. 

I should mention he’s thinking about listing with realtor for 85k but doesn’t expect to get that much.

Focus on finding the owners of those distressed houses and expect to fail.

Kasia,You can't expect any personal tax advantages from your IRA.

Would you expect the mold to spread to other areas of the house?

I can try and post updates after each month to see if my expectations are consistent with reality.