I was told this was not proper. 

Much more likely to make a mistake and buy in the wrong area and overpay if you don't do the proper research.I generally only recommend to more seasoned investors, but it can definitely be done.

they purchased the property to sell and that disallows it for 1031.The more proper way to do this would be to sell as yourselves and buy the replacement property as yourselves (letting your son help direct what you buy). 

I know 3 X times monthly income is needed to rent a place , between my pension and 457 b withdrawals , I will meet income requirements, credit scores are good for both, credit card is high but I am managing it with no problem, tenant record is excellent (never late on rent payment on my life), after this brief summary, these are my questions/concerns:-How landlord/rental property feel about this situation when there is no W-2 income to present?

I have no idea if Zillow is accurate or not but more modern homes in the neighborhood are selling for $200-$300k so it may be a good rough estimate as I haven't had it properly appraised yet.

You need it properly converted with permits to have it zoned as a living space (second unit) otherwise you will violate your insurance.

Hi David,This may be too late for you, but this is a common issue when laying tile over top of concrete if not done properly. 

If I go and add cells myself, I need to re-write the formulas for everything to flow properly.  

What is the proper procedure to follow if a tenant dies?

Our income is sub $60k/year (with the GI Bill income, etc) and we're about a year and a half from being debt free on the cars/cards/etc.