@Terry Hughes..Most of my BEST deals happened when everyone else stood by.  2007/2008/2009 in my market..All my offers were accepted with little or no competition(HUD()Fannie Mae)..Perform Due Diligence, Run the numbers and Take action......GL

Consider having an energy audit performed on your property.

If this is really the underlying problem, you're unlikely to get sued to performed and very likely to lose your EMD.

The FHA loan may require the seller to perform repairs, or pay for termite treatment.

Get the borrower to re-perform.

Network with brokers and agents, run your numbers, make offers, perform your due diligence, before you buy call in experts to look at the property, raise more or have enough capital reserved to cover issues that pop up, which they always do, run your numbers, don't overpay for the property and run your numbers.

Secondary/tertiary or submarkets just outside major metros typically have low rent appreciation, lower returns, but are generally more stable; like you said, I think poor performing assets in these areas are great to invest in an "up market".

Putting everything into the performance of one property is actually riskier than buying multiple properties with mortgages in many ways. 

We were set to close on our first duplex in the homestead area and were performing our final walk through when we found out the place had been completely ransacked by someone who stole the copper wiring, furnace, water heater, and destroyed the kitchen and bathroom doing so.

I've read books (Turning Distress into Success; Performance Anxiety; Seller-Financing & RE Notes in the Dodd-Frank Era), explored the posts in this forum, listened to @Bob Malecki 's BP podcast episode, and now have some (hopefully reasonably intelligent) questions to ask.