I don't think it is wise to rent while "investing" because it looks like its defeating the purpose.

However the bank we approached had no interest in counting the potential rental income for our existing property toward the DTI calculation when we applied and were rejected for the loan.  

Based on that, what properties can you qualify for, run numbers, and project methods of repayment or profit sharing on that.If an investor is giving you a loan for a down payment, that will count against your debt to income ratio.

If you count on $70/month, that should be good enough to get you the proper insurance on a property in that price range.  

Lenders can count retirement accounts towards reserves, and that has sufficed for us. 

As experienced investors, what are some things that count as major issues that would make your cringe and ask for concessions?

She thinks we could get into a multiple bidder situation, but I am not counting on that. 

Look at exact room count and size of comparable rentals

While that might happen, I wouldn't count on it unless you're forcing appreciation in some way.

Do not count on properties appreciating in South Jackson.