John, I think I am leaning towards using Zillow to save my self some stress up front.

If your contractor and the current tenant showed you enough to make the deal a "no go" for you, then you should be able to terminate the purchase agreement (and only lose the DD money...in NC).I like the idea of getting quotes on making the repairs, and presenting (still, within the DD period) the seller with the problems, quotes, and a request to reduce the price by $xyz....or, you could just decide you don't want to deal with the property since it has xyz issues.  

Minimal HOA.Assuming that rent, 20% down payment, 50% vacancy rate, the cash flow would not be super, but one of the main reasons for my interest in real estate in the immediate present is the effect in reducing our taxable income, rather than for providing replacement income.

To reduce your risk ever further there are Multifamily Funds that are holding multiple assets.Good Luck,Joe

Also, I refer real estate investors in my network looking to reduce their tax obligations to my favorite Cost Segregation company.

They will usually reduce or discount subsequent loans or if you have multiple properties in a blanket.  

Will that be the case even if the depreciation never reduced my ordinary income tax in previous years (due to income limits)  and just got added to the passive activity loss?

Our idea at this time was that if the damage is not super expensive, we will not go through an insurance claim to reduce hassle, and keep a good reputation with the insurance company because we have heard of not so good stories related to home insurance claims.

In addition to reducing your income while increasing your costs, you're also opening yourself up to this retaliation law you speak of.

If I reduced the price to 1million, it would be almost a 10% cap rate, with leases in place, and the ability to expand and double the square footage if desired.