My usual approach is to find 3/1 or 3/2 single family houses in a good school district, but my budget will be rather low for this move since my family is staying in OH and we'll be running two households. 

Interest only, low interest cost, can be tax write off.

Nothing more than trumped up maintenance complaints.

My offer on a REO was rejected as too low - the issue with the townhouse is listed at (1)"system did not hold pressure due to damages, unable to find source of allleaks, water heater damaged at side where TPR valve damaged" and (2) "Water Supply and Sewage system was inspected for presence of obvious visible defects.

Being licensed I will get paid a commission on the buy or the sell or both in some cases and he will get paid by buying low and selling high on the homes that I find him.  

I would replace with batt insulation if you are doing it yourself...easier to work with and readily available from Home Depot, Lowes, etc.  

We address routine maintenance issues, but the property was in pretty poor shape and we failed our first ever REAC inspection this summer.  

You will likely have a difficult time finding an agent to prepare a low ball offer like that because the likelihood of winning is so low.

At the moment, I am a little low on start-up capital but can provide all the construction, rehab and management.

You budget for maintenance but not for Capex?