Things can go wrong with high-end properties too, but it's all about risk mitigation.

I also know we run the risk of triggering the due on sale clause if we try to quit claim the title to a LLC. 

Thus more risk.

With only 1 transfer since the subdivision and several years passing since the developer sold the lots... low risk. 

Their thought is risk is low even if property is off by 20% we still get made whole on the loan with a default.I know specific commercial retail developers who are lazy and love buyers putting 50% down because they do not have to hardly show any due diligence to the buyers lender and it closes.  

The building does have quest water lines that are all behind drywall except when they connect to fixtures and appliances.It would be expensive to repipe this as a lot of drywall would have to be cut and then repaired.I know it's a risk to wait for a leak to start and then to repair just that section.I'm getting an ok buy price and the seller won't go any lower.  

That is simply because they are higher risk for the lender since they are not insured by a government entity and the lender will demand to be compensated for that risk. 

it depends on your risk tolerance (will properties continue to appreciate in the near term) and are you willing to supplement a negative cash flow property?

I find that the market prices for risk/reward  or your in an area of functional or economic obsolescence.if its your home town and you can self manage and want to do it.. seems Ok to me.. as long as your going in with your eyes wide open.I have helped many a C class operator scale their operations..

I would be interested to see what MI and OH notes are doing these days.back in the day the bigger players would not even bid on those notes  :)  I don't play in that sand box other than with commercial banks that call me on one off's.. and its has to be a smoking deal for me to knowingly go into a bad situation up front.. that's why I recommend talking to those that do it for a living have their systems in place etc etc.. in my mind small mom and pop investors take a huge risk trying to play the NPN game .. and would be better off finding nice performing notes.. but that's me.