I did use my ( self directed) Health Care Savings account to purchase this.  

Regardless of the year built, if you know your property cannot meet the health and sanitary code requirements for a rental unit then you have to fix it.

The owner is a former resident of our town now living in California with some health issues and is looking to get out of the building.

Not horrible, just an extra cost and a pain. 

Wife grew up in this area and most of my family is from here so we are familiar with the benefits of living here- Education, health care, etc.

Unconforming units can be a pain in the a$$. 

It's been painfully boring, but I've also listened to every single BiggerPockets podcast.

It sounds to me that if you can sell it for even the lower appraised value, you should take the money.I feel the pain in your post ... being torn between the promise and the financial facts.  

I know theyre a renowned pain in the *** but I don't have a lot of moves right now other than that and short sale.

It gives the OoS Investor a chance to learn about that state while not having to feel the pain of doing it blind.