I would be concerned about the neighborhood as well.  

This would resolve all of your concerns listed above, except for the need for tenants to pay for multiple reports if they apply multiple places.

My other concern is should I wait for this bubble to pop?

A lot of concerns just looking for advice. 

There are other FHA requirements concerning which you should contact your local lender, but determining whether or not a triplex or fourplex meets the self-sufficiency rule is a good place to start as this rule will immediately eliminate many properties from your search, especially in expensive markets like mine.Good luck and let me know if you have any questions as I just went through this process last year.

Account Closed good point I'm just concerned that if I focus on one small market than I wont be able to find a deal.

One of my first (of many) concerns will be to not overdo improvements, being as I tend toward, but am not a full blown perfectionist.I'm sure I'll have more specific questions as I go, but for now I'm just schooling myself on the basics here at BP!

However, if you adopt the practice I have described herein, you 1) reduce the odds because you remove any grounds they may have, (deadbeats know the system, believe me) and 2) if you do end up in court, you have a paper trail that demonstrates you complied with the lease, addressed any concern they had in a timely fashion to the extent the lease obligated you, and that they were fully satisfied with everything you did.  

(I don't know, I didn't work it out myself)...Other than the neighborhood concern that has already been addressed, the main reason I would be against your quoted Pro Forma numbers is that at the end of the day, you have only turned your initial equity of $34k into a (hoped for) $41k equity, which is not enough of an increase to be able to continue a "Buy, Rehab, Rent, Refinance, Repeat" strategy.

Yes, that house hacking strategy is something i've been looking into a lot lately but my concerns where not being there most of the time because I travel to earn an income.