Very little cash (like dumpy mobile homes), same effort (almost all deal types include Lonnie deals take the same amount of time and effort) yet the pay off is much bigger selling a pretty house or renting a pretty house you got on seller financing...What is cheap is rarely a good deal is the context here.Sure some folks do ok buying MHs in parks and renting them.  

Furthermore, it requires a lot of time and effort (title searches, lien/tax issues, etc.).  

I've played that game, 3 out or 3, owner redeemed and I got 10% interest on the money for my time and effort.

@Jessica Monroe Bigger Pockets is a great resource because of guys like @Jon Holdman who spend the time and effort to answer the forum questions.

The only way I see real change happening to an area like that is if one investor or group of investors came in with a plan and bought up entire neighborhoods.Have you seen this type of concentrated effort come together and work out somewhere in the past?

My question lies in the reporting of the income from the guest house rental in efforts to maximize our loan potential for future buying power.  

So there is effort involved.    

I am worried that my efforts to work with a local bank will result in a stalled project. 

You are investing your time, efforts, and marketing dollars to find people amazing deals, damn right you are an investor.

As in any opportunistic or value add opportunity, the investor extracts value when they make the effort others won't or don't, and are willing to put up capital up to the point when it starts to become uncomfortable.If you like the possibility of owning this property then I would suggest you spend whatever my minimal amounts are required to get comfortable before the auction, not full due diligence just enough to answer any nagging questions, and then make your initial offer.If the bidding starts to run up from multiple buyers then move to your next comfortable price.