In this case, if you bought the property and lived in the property as your primary residence for at least 2 years, then you qualify for the 121 Exclusion ($500,000 tax-free as a married couple). 

This is right from the IRS website.Qualifying for the Exclusion In general, to qualify for the exclusion, you must meet both the ownership test and the use test.

Keep in mind, if you rent for more than 35 months, you will lose any 121 exclusion on cap gains of your primary.

What @Bram Spiero is alluding to is that if you had that  house leveraged to the hilt with little cash of your own in it your cash on cash return would be dramatically higher - but so would your debt.One other thing to consider is that right now you can sell that house and the profit from it would be tax free because of the sec 121 primary residence exclusion.  

I'm planning on renovating as quickly as possible and living in one of the units for 2 years so I'm eligible for the $250k capital gains exclusion.

Unlss you're bound to use her by some sort of exclusivity agreement, I'd approach the seller (or their agent) directly.

Real estate will never be my exclusive investment vehicle but I hope to make it a portion of a well diversified portfolio some day.

Also they had been previously evicted,something our PM didn't tell us.What I find totally ironic (from some research)....is they seem to have an expensive cottage, have aboat, and could (I'm assuming) afford an expensivewedding at an exclusive club for their daughterjust months before moving out.So, we are trying to recover as much as we can.

When I owned single family exclusively I had the same question.

One can be disciplined and still use debt - I don't know why anyone would think those concepts are mutually exclusive.