It can be argued that making that unit legal will increase the value of the property.

You have to figure out instead what you can be doing that you are passionate about to increase your money 200k,300k,500k a year etc.I want to live for today.

He said that they purchased an asset with rents that have not increased in 5 years (can't remember exact amount).

I was able to work with them to get a 5% rent increase put in place within 2 months of closing.

My question is if it's always better to purchase properties in cheaper market where it takes less capital and the rent to price percentage is easier to get above 1% or if it's worth investing in a city like Denver where it's very hard to get the rent/price ratio over 1% but the cost of the real estate increases much quicker than it does in other less desirable places to live?

Overtime I imagine this will increase.

If you have the ability to do so, increase your earnest money deposit.  

Cash on cash before rent increases with newly minted leases is about 4 to 7% going in.

Landlords I spoke with, experienced no changes in rents but may have faced slight increases in vacancy.

Debt is from a mortgage on our primary residence and student loans.I'm now in a situation to either reduce debt or increase my regular income (via paying cash for rentals/purchasing notes/something like that) to a point where my dti would be more attractive to lenders.