And by moving in you will get a proration tax free in a bit of time.I don't see how you can create a good scenario that involves a reduction of debt on that 2nd property without a sizable tax event. 

State the lower price with the balance due from the seller or crediting him with him making a note to you.You could pay the interest and he pays the principle reduction say for 90 days or what ever you agree to.You can also simply contract for the work to be done.

Calumet Heights includes an area called Pill Hill, due to its history with African American physicians.

In my interpretation they will offer more money than the average investor then go back during the inspection period with a significant offer price reduction to be able to buy where they should of in the first place.   

You need an engineer more than an attorney on that.The short sale will be rather straight forward, it's a principal reduction not really a SS as homeowners would go through, you should be able to review the buyer side without much concern.If you have legals on each lot the development headaches are pretty much over.

Inventory level has increased whereas reduction in prices are widespread now.

Like you stated, it was in their best interest because they mainly rented to low income people who eventually were conveniently evicted due to loss of employment, welfare reduction, lack of child support (I could tell a horror story about my neighbor regarding this that involved missing cs checks....but that's something I cannot prove, only a bad feeling.)Regardless, it definately was a bad experience and I refuse to rent ever again.

But I love what you call "difficult-to-fix problems"... those are great for getting huge reductions in the price...

Next, IOs aren't made as often on a long term basis, you may have renewal fees and be looking at future LTV requirements with no principal reduction.

Property has been for sale for 2 years now with a price reduction every few months.