I submitted the 5 properties like mine from the 290k-350k that sold just weeks/months before my appraisal and she did not accept them.

If your numbers are correct, this sounds like an awesome deal - in fact, it sounds too good to be true, specially when you mentioned he will even finance the rehab.If you can structure it below, it will be awesome but not sure if the seller will accept it.

Here's an easy test/rule...50% rule. 

Unveiling My Greatest Technique in Real EstateMy best technique in real estate is getting a seller to accept my contingent offer before any other buyers and myself are able to even walk through to see the property.

They are both moving out of state and have accepted the hit to their credit report.

California now has a pretty onerous brightline test of sorts after the Dynamex case last year in the CA supreme court.A hired worker will be considered to be an employee unless it can be shown the worker passes ALL of the following test:1) The worker is free from the directions and control of the hirer in connection with the performance of the work, both under the contract for the work and in fact;2) The worker performs work that is outside the usual course of the hiring entity's business; and 3) The worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the worked performed for the hiring entity.Note this is a lot more restrictive than the federal "questionnaire" for an employee vs IC determination. 

To throw numbers at this exercise, assuming the IRS/primary lien is 400K, the amount owed to the bank is 500K, and I made a bid at 600K and it was accepted, would 400K automatically go to the IRS to satisfy the primary lien, and then the remaining 200K would go to satisfy the bank mortgage? 

To save time we set one showing up in a few days and said we accepting applications through the weekend.  

We offered 185,000 last week with no seller assistance and the sellers came back and said they’re only willing to accept a 225,000 offer due to how much they need to get their money back out of it.

I think the biggest concern I have is that you are calculating your "cash flow" without factoring in ALL you expenses.Lets say you are "losing" $1000/month....but it would cost you $1200 to live somewhere else.... so you aren't really losing that full $1000/month....since you have tax benefits, equity, possible appreciation etc etc.......but do you have the cash to deal with that "loss" and be able to afford the expense that will come up..... the upkeep, repairs, rehabs, turnover etc etc.....other expenses WILL come up....not IF but WHEN....When you are accepting short term "loss", you are counting on a long term payoff, often via appreciation....plus you have to have deeper pockets to weather that loss for extended periods