I don't think we've seen the full effect of it either.In lending, for each file we have to show proof of the borrower's ability to repay.  

Ask for copy of checks that they claimed they paid rent or any kind of proof that rent is paid on time.

this is proof of how Partnerships can go bad

And do I need a pre qual letter to show proof of funds?

Even if you are planning on paying cash for properties or use financing, I would get a pre-approval loan letter that states how long they will close your loan and your maximum loan amount  or get a proof of funds to submit with your offers.Another thing you could work on where your office will be.  

That or a proof of funds letter should be submitted with your offer to make the seller feel better by you.  

After reviewing his credit report  I also asked for proof of income for the last three months.

I believe estimates for repairs are not receipts and you will need to provide proof of damages / repairs charges.Send her the move out charges with statement of amount due, In Minnesota you have 21 days from move out to give them this, if you missed that I'm not sure what your recourse is. 

Appraiser will not give it any value if county records show it as a 3BR and you don't have any proof/records of a permitted addition.

You've heard most of the pros and cons on both sides already, but here's one pro of using leverage (i.e. not being in all cash): time.