If you embrace the ability of real estate to replace your current W2 income job, this could be the first step toward doing that.  

:(    Owners just do NOT have enough stress:  under water, extreme deferred maintance,  loose of income and behind on payments. 

If someone is working with a lower balance of funds like I am, than I'm more likely to prefer cashflow so that I can continue to afford the property as well as my life style.If I had some disposable income that was in excess of what I need to live on, than I'm more inclined to look forward towards appreciation because I would have enough wealth to take the hit now for the bigger payment in the future. 

I understand the REPS part of the equation for offsetting W2 income tax.  

I live in an area with very large incomes, and low house prices compared to the rest of the country - there's dozens of cities and towns in Canada like this, so don't paint the market with a broad brush. 

Make sure you're performing credit checks, background checks, verifying income (calling employers and even checking bank statement if you need to), and calling former landlords to inquire about/confirm their habits as a tenant (cleanliness, respect for neighbors, paying rent on time, etc.).If you don't think you're capable of this, definitely find a good property manager!

maybe re-verify the couples income to make sure it meets your rental income criteria.

My question is: how is capital gains tax figured?

If the seller charges a rate below the AFR, it creates a tax liability on their end. 

One last challenge is their estimate of property taxes - they are all VERY low:(Michigan has some interesting property taxes because there's a Taxable Value and a State Equalized Value, as well as Homestead and nonHomestead millage rates.