We agreed on price, but something came up prior to closing, so we negotiated the price down by 12k.

Also, it goes without saying that you should consult an attorney; Okay briefly reading over your lease agreement, it's a good agreement but it is very loosely written and does not provide for many remedies prior to eviction so... that is something you should look to improve on moving forward, there should be an escalation of force in as $XX fee until rectafied and THEN otherwise eviction, also you should number your lease clauses.Regarding the current situation first and formost, I understand you live in the property as well but you should certainly take on a 'HANDS OFF' approach in regards to internal disputes amongst Tenants; you are after all a landlord, not the ethics police nor the real police.... if other Tenants have issues such as those they should inform you and then they should contact the police... if it's not police worthy than it is more than likely just internal bickering. 

I've self-managed mine remotely (4 hours away) for almost a year and a friend is asking that I manage his house located about an hour north of mine. 

If that were the fact pattern and the prior owner had maintained a rental license, you would have been required to obtain a rental license  upon your purchase but the city would issue the license.

What types of locations are lower cap rate properties generally found and why?

I think that specific location is more important than a zip code.

Prior use will not impact other than lowering the amount of depreciation you'll have to recapture.  

Look at your prior filings, we have to jump to a conclusion that you itemize.  

However, when the offer is for a bank REO the bank want a proof of funds letter that shows that the person making the offer has the money in an account under his/her name showing that the funding is in place.The problem is that the private lender is not releasing the funds to me so that I may place it in my account prior to making the offer.

Location is a big factor as well.