If it has a basement, I'll look for discoloration in the exterior walls, sometimes you can see if there's been water in the basement (where I live sellers are required to disclose water problems).

Most allow gifted funds for the down payment as well as seller concessions of 2%. 

Steve,Seems like you put a lot of effort in research and legwork finding potential sellers.

Property needs some fixing, but I think has potential (especially in our highly inflated housing market).

Chicago REIA has over 800 member most don't do mailings or active marketing at all. 

Present the inspection report to Seller and ask them to address the issues.

You can pursue a judgement against the property owner for non performance under the loan agreement terms which would come up on a title report when they go to sell or refinance the property since a judgment search would be completed against the seller but that takes time and money.

@Naveen kumar VadlamudiYou can successfully invest in most Midwest markets if you build your core 4 of a local real estate agent/deal finder, lender, contractor, and PM - BP is a great place to start!

You want to make sure the seller is willing to get involve all the time they are asked by the bank to do so. 

In the competitive world of real estate investing, finding tough markets with great upside gives you an instant edge over the competition.