Investing can work in the area by having more capital or being creative.

The rents are too low to support long term capital expenses (roof, new furnace, etc).

It helps you decide if the risk to your capital is worth pulling your money out of a CD, etc. 

Owner would therefore face a large capital gains penalty upon selling the asset.Would it be possible/legal to execute a master lease option with a buyout that is intended to outlive the seller such that they can have fixed income for the remainder of their life, and such that their children can receive stepped basis by inheriting the asset that is already under contract (which was obviously written to be binding upon successor's and heirs).

It unlocks capital. 

I know of many people getting into REI using wholesaling as a capital growth strategy but that's not for me and I think I would really enjoy this specific strategy you are talking about here to be honest. 

I'm partnered with two other guys, and we're investing in South Carolina (bought a duplex recently) and potentially in Pennsylvania as more capital and deals become available. 

A lot of this work gets done in the background and, most, capital raisers only see the smoothed out #s.

Capitalize on the equity that has been built by pulling out a HELOC on your townhouse .

As rentals the capital requirement to rent ratio is more favourable than a SFH ... to the point where you really do not care about re-sale value in 10-20 years.