If property is being financed, some lenders (depending on the repair needed) may require it be completed prior to closing.  

Can I buy a property directly from the owner prior to hitting auction or am I already behind the ball?

I don't know if the engineers have gotten smarter but I see a lot of foundation problems on houses built in the 80's and prior. 

I do know that if you're not a RE professional and even if you're actively managing your real estate assets you will not be able to write off any of your passive losses from your rental real estate when you're over 150k AGI (you mentioned you were 190k AGI - prior to itemized deductions and exemptions).Also the other thing is that when accountants go to create your depreciation schedule they dont take the 1.75M and divided it over 27.5 years.They typically (other wise proven via engineering study or cost seg report) use the LA/ventura county tax assessors value for land and improvement(building) and they take that percentage on the assessors website and apply it to your 1.75M sales or acquisition price to determine your depreciable basis.So for example, if the improvement was 80% of 1.75M then you have a depreciable basis of $ 1,400,000 / 27.5 years = $ 50,909.10 annual write off.Back to the above REpro, if you're not a REpro, you wouldnt be able to write off anything against your active/earned income and you feel the full brunt of the tax man unfortunately.

@Tyler Morace  I'd suggest working on your team prior to going in on this deal unless you plan to self manage and maintain the property over time.  

That tells me that the bank may have claim to full ownership but hasn't exercised it's claim(So it would not work for her to try to sell me the property without the bank's involvement prior to closing). 

Derrick Wallace yes, both asset types and investment vehicles.The general partners should "war game" different market shifts and exit strategies both prior and during operation.

With the seller's permission, do those patches on your dime prior to the appraiser showing up.

What homework did you do prior to bidding on the property?

I'd not take pets in the future.Get them out prior to closing if you can.Tenant 2, raise their rent to market and keep close watch.