Although there are still challenges (as with most older towns) things have been steadily improving for many years now - most residents love the place and are excited about the many amenities & general direction of the area.I would love to find a local wholesaler or other sources of good deals - any suggestions on where to look? 

So, the basis would still be your adjusted basis, no step up to FMV.In general, the IRS doesn't respect "self-dealing", which is selling assets to yourself, a family member, or a company you control.These issues get complicated, which I love because I get to charge my time helping clients through these issues!  

If the property is either nice(or i can make it nice), and the neighborhood is solid, then i move to step 2, the math.

My experiences dealing with city inspectors has also been great where as my step-dad in Arizona says it's a totally different world.  

An example you be if you want to stay in a high PRICE loan under dodd frank and not get into high COST (where borrower has to take a certified class to know that they are paying a high cost) and you are doing a wrap owner financing (where you have an underlying loan on the property) then your limit above APOR is 8.5%, meaning you have to stay under 11.5% roughly for today (11.5% is example of today's APOR and your 8.5% max limit for subordinate liens, and 6.5% on first mortgage liens where you are financing a free and clear house) and it can change daily, use government rate spread calculator to check for each loan) then if you charge 10% and 4 points on owner financing, you may over step into high cost mortgage loan which we want to avoid.

It's a bit overwhelming to actually find out that, I have stepped into and arena where I have absolutely no experience in.

If your working with a hard money lender in your area some of these steps can be skipped.

The first step would find an Investor Friendly Realtor assuming you do not have access, to the MLS.

If it isn't currently listed for sale with an agent your next step is to contact the seller directly.

It would be wise before taking a step forward into an investment strategy, speak with your husband about what you are trying to accomplish by investing in real estate.