And I guess there will be capital gain tax on any profit we make because we are selling before 1 year period even though the property value is below 250 k.     

I also strongly believe that in the long term we will continue to see appreciation and rent gains as people exit California.

and is there a benefit to the buyer tax-wise if it is legal?

That is helpful as I never thought about those other benefits!

My goal is to own 7-10 property where I gain passive income .

I was explaining the benefits of a Private Money Lender (or Hard Money Lender) when it hit me.

Purchasing a duplex or larger multi-family homes to live in one unit while renting out the rest can provide you with several benefits;1.

And your previous experience of doing all the wrong things will only benefit you this time around! 

As you gain more validated information, like during due diligence or formal property inspections, you can adjust your numbers accordingly. 

Now, something to consider:  if you can gain control of this property and then re-purchase the units owned by third parties you could turn this into a grand slam because you would be able to make the property whole again and all of these problems go away.