It is also possible that a contractor may purchase it because s/he would have the skills that decreases the labor and materials cost for this kind of project.

http://www.har.com/content/newsroomHighlights are:Single-family home sales fell 10.2 percent compared to October 2014, marking the fifth and steepest decline of 2015;Total property sales dropped 12.1 percent (7,026 units);Total dollar volume decreased 8.3 percent to $1.8 billion;At $271,648, the single-family home average price reached a record high for an October;At $205,000, the single-family home median price also achieved a record October high;Single-family homes months of inventory climbed to a 3.5-months supply versus 2.8 months a year earlier;Townhomes/condominium sales dropped 17.3 percent with the average price flat at $196,242 and the median price down 1.0 percent to $146,500;Leases of single-family homes rose 4.1 percent with rents remaining unchanged at $1,708;Leases of townhomes/condominiums jumped 12.4 percent with rents sliding 5.0 percent to $1,510.

Whatever you don't let anyone off the lease since it decreases your chances of collecting rent.  

The value of that property kept decreasing until just recently...

The easiest way to satisfy this rule is not to increase the numerator, but to decrease the denominator.

Even a 10% decrease in rent is better than 2 vacant months.

Cash is far too valuable to have it sitting around dead not earning it's keep.Cash sitting in a rental property does not increase cash flow it decreases it.

For example - if the comp house as an additional bathroom, I understand I need to decrease its value to get the value of the house I'm looking at, but do I decrease by 3%, 5%, or 10%?

The value of the business is increased or decreased by the efficiency or lack of efficiency in which it is run.

Once that is completed then you'll show to a HML that you are getting more experienced, which will in turn decrease your rates.