Your point about one day selling in an area where mostly investors have purchased and will be prospective buyers is a great point.

Between that and the $2,000 quote I got for $200k in replacement value and $300k in liability I am feeling fairly deflated about the prospects of this house.

My overall thoughts are mostly aligned with @Aaron Mazzrillo 's first post.I got the idea for posting this topic after having a short conversation with a prospect for one of our rentals.

Cash flow negative can be OK, if you can sustain it and there is some other prospect for making money.Trouble is that you want to live in it.

Townhome usually means same as condo only you own the land underneath and air space above.They may not be able to sell the condo because FHA allows for people to purchase with minimum money down and if it's not FHA approved they lose a large pool of prospective buyers.

However, if a bona fide offer is received from a third-party prospective buyer, then OWNER shall again notify HOLDER in writing and offer the Property to HOLDER at the price and upon the same or better terms as named by the prospective buyer.

Run your own credit/background checks on the existing tenants as well as prospective tenants - refer to the BP tenant screening guide I referred you to in a previous post.

There aren't many people alive who remember what happened in the Depression but one of the things that made it so depressing is that the economy was caught in a cycle of deflation where prospects were uncertain so people stopped spending which reduced sales which caused people to be laid off which lead to more uncertainty and less spending; rinse and repeat with prices falling each round.

I assume that these liens will become the responsibility of a prospective high bidder due to their government/tax nature?

Understanding that mentality from the get go, will give you a great prospective on how to approach these short sale deals.