In the current market you may find the third R as the most difficult with current home values and interest rates, but it is not impossible!  

Net income = $39,240Monthly operating expenses are as follows: Trash - $33, Landscaping/yard - $66, Electric - tenants pay, Water - $95, Maintenance $87Monthly taxes about 3KSo, gross expenses are at $41,064If I'm doing the calculations correctly, my net operating income is -$21,888 and cap rate is -3.4%.Obviously the current numbers look terrible for this investment, but I feel like the rent should be raised significantly based on comps (above 2K each unit). 

The rates are competitive, but they require a larger down payment, usually around 50%, but your client could get in a great 3 fam in Bushwick, Bed Stuy, etc. 

Rates are high, prices are high. 

I've been having a hard timing finding good cashflowing opportunities that are not foreclosures or deeply discounted.

Whether or not the note holder chooses to do anything depends on many factors, not the least of which is the interest rate being paid on the note I question vs the current market mortgage rate.  

Usually tenants don't even bother to show up to court for my cases... and if they do, they would almost certainly not get into finer details like this unless they had an attorney.There are attorneys that specialize in evictions and will likely give you the best rates.

I have found a number of other users posted this question in the forum over the years but I cannot find a resolution anywhere.The way the Rental Property Calculator derives the "Profit if sold" number seems to have an error in it if you are using the function to increase the rental rate and expenses each year.

The initial returns are lower on paper in better locations (lower cap rate, less initial cashflow according to the magic spreadsheet), but the overall returns in reality are much better including all the different ways people make money in real estate (gained equity through natural and forced appreciation, principle pay-down, increasing rents= higher cash flow when looking at the big picture if you buy and hold, depreciation tax benefits, plus way less of the big profit killers like turnover, non-paying tenants, property damage and theft, dealing with bad contractors because good ones don’t choose to work in bad areas either, etc.). 

I've had security deposits and pro rated rent at closing on dozens of deals with all kinds of loans including FHA.Are you maxed on credits?