If you do and have the capital to do afford it I do not see why you shouldn't start with fix and flips.

However, all calculators seem to indicate that with my income of 85k, home mortgage of 1200 and car payment of 418 mean I can only afford 150k for a property. 

The plan is to buy the Cash-only REO using our LLC, fix the health and safety issues in this home (which will then make it financeable), and then purchase the house with my approved 150k residential loan.

lets say over the course of 10 years you lost your job and you cant afford what the payments have ballooned to after the interest only payments ceased. 

The fastest way to repair credit is to use what's called Bank Round  RobinLet's say you got terrible credit you been bankrupt before and you want to repair your creditAs long as you have a good income and you can afford to do this step number one is to get $1000 together and bring it to let's say a big bank like Bank of AmericaGo see a consumer bank manager and tell them I ran into some serious trouble in a rebuilding my credit history I have $1000 that I like to put into a CD and borrow against for thousand dollars and pay it back as a consumer loan being reported to the credit bureauThe bank manager should have no problem using those security and they give you an approval usually quickly and they give you $1000.

I want to live in SF but can not afford the rent.

He had traffic and plenty of offers but he rejected them and said he could afford to hold off.

While looking I found a couple houses that I liked for $80,000 that we could afford and generate positive cash flow in the future and quite a few fix up houses for $45,000-$65,000.

Another aspect is here health and likelihood of ending up in a nursing home, that sale can come back in her determination of assets to qualify for benefits.

I have real concerns whether she can continue to afford this property.