Applying the 1% rule, if the average rental rate for a given area is $1500, but the home value is $225K, that's probably not going to Cash Flow since this property would require at least $2,250 monthly rent to meet the 1% rule and make it cash flow.

I personally prefer a legal position involving deeded ownership or secured lien position; however almost any real estate activity can be profitable given the right set of circumstances.

@Adam Hale based on those numbers the 1% rule applies so it seems alright, but there are other factors you have not mentioned that are critical. 

According to him we may have a leg up because the decision was based on them being "model tenants", and that no longer applies.

Over the past 6 months I have been cramming as much knowledge about different investment strategies and have been extremely excited that i have gotten the chance to apply what I've learned and create some passive cashflow.I have 3 current buy and holds and would like to acquire 2 more before the end of the year.

I finally decided to apply what I've been learning about, gassed up, and got to to know a neighborhood a little better.

If they reduce price by the cost of the expenses plus a little bit for time it is the same property that you were willing to buy and hold except a lot of things will be brand new and less likely to break in the near future.In terms of negotiating don't expect much more than the contractor's bid off the purchase price if these sellers aren't too emotionally involved. 

Repellents containing DEET (N,N-diethyl-meta-toluamide) typically used as mosquito repellents are also labeled for use against no-see-ums and can be applied prior to exposure to the biting midges.

Then others started to get involved and that is when he saw his investments start to move forward. 

Would I be wrong to take 3 or 4 similar properties (1 story) and determine a $$/sq ft and apply that to the 4000 sq ft of a two story AS A STARTING POINT ?