But there are some limitations on over deduction of expenses too. 

Most say they do but later realize they don’t or have done limited 203ks in past 5 years.

what are owner liabilities truly?

You want to make it very easy for the tenants to renew early (limits their leverage) and inconvenient to leave.  

I think the latter requirement could be overcome with a letter from the IRS confirming a $0 tax liability for the years requested; however, I haven't seen this scenario unfold as most people never take the time to fully understand the contracts they (don't) enter into.What are some situations you as an investor have faced that would normally require a tax return that you were able to work around and how so?

Given the FHA limit of 468k, I am hoping I will end up with about 100k for renovation. 15% of this reno cost would be set aside as contingency fund to comply with FHA reno regulations.

However, you need to consider that over time taxes and insurance do go up, so if the margins are very thin in its present state with limited expected rental growth it might not be a viable deal. 

If they give you 12k for the right to own 10 % of the equity ( this is all negotiable ) at a future date, their IRA does not incur the liability of owning R E within it.

But remember,  if you have overall loss, the loss is limited unless you are RE pro. 

Maybe it will be to pull equity out and to go out of state, maybe it will to try and house hack, maybe it will be to pull money out and invest in a syndication... the sky is the limit when you have a free property that has as much equity as you.