Any agent fees and closing costs may eat up any profit.  

Wow, sounds like you have a solid nest egg to start from, which most do not so you're off to a good start.  8% is 100% reasonable. 

You don't have to set your sights as high as $700,000 you can find Multi's in good neighborhoods in good repair (though they will need updates) for $450-$500k+ , the problem you'll fid with house hacking with an FHA loan (which is the cheaper option) is the mortgage insurance will eat away at your returns and depending on where you buy that premium may cause you to only break even.

Short story you can have your cake an eat it too. 

I'm trying to reduce the cost of "bad tenants", while hopefully not eating up all my profits in the process!)

In short, I agree with @Evan Polaski in the sense that I don't think this property is necessarily a golden egg. 

I have heard a loose argument to eat the difference and be made whole come tax time. 

Also, make sure you understand whether each line is a bid/estimate or allowance and how eats costs for overages, and if you come in under, do you get that money returned. 

I'm confused as this seems like a chicken and egg situation to me.

Every month, when he got the chargeback billing, about $15.00 he would rave about his wife and him eats take out food, no time to cook, and his landlord has a large family, constantly cooks, and have people over for dinner.