However, if I was to make a $10,000.00 annual principal payment( that I will be saving from the $1,590 surplus) I could have this free and clear in 7.5 years. 

- I presume it would be fraud for them to use their annual exclusion gifts to give us the cash, and then for us to use our annual exclusion gifts to "gift" back an amount equal to net income and then to "gift" back an amount equal to their share when the property is sold in the future ?

That amount is 50% of my annual rent.

A modern, direct-vented, condensing hot-water heater will have an annual fuel utilization efficiency (AFUE) rating  >90.   

At which point the equity I will have amounted (est 7%) will atleast cover nearly all closing cost if I were to sell the home at the same price I purchased it for, leaving me with just my cash flow earnings and a nice 8-10% annual return.

There are 4 people at the board, 3 of 4 are people working for the investor's company.A few months ago, after the annual board meeting, the board propose and approve a special assessment for $2200 of each unit. (3 out of 4 people voted). 

And one Four Unit for $55k (current debt FHA 203 loan -  $86k) now netting $28.5k in rents before debt service.So consolidated holdings are $110k in debt (no prepayment penalties with either) and netting $40k annually before debt service. 

Cap Rate 8.5%Cash on Cash Return: 16.9%20% DownCash flow about 2700 annually

The S&P500 historically returns like 8% annually.  

Monthly Rent Revenue: $4450Vacancy: 7%Financing Strategy: AssumptionsDown Payment: 25%Interest Rate: 5%Term: 20Monthly Debt Service - $800Property Acquisition - AssumptionsPurchase Price: 161,700  Closing Rate: 2%Deferred Maintenance Cost: 10,000 (assumption) if no deferred cost then better Operating Expenses - AssumptionsProperty Taxes - 6400Insurance - $4500 (8000 seems too high)Property Management - 10%Repair Rate - 6%Maintenance - 6%ResultYour Annual Cash-on-Cash - 28.6%Cap Rate - 16.6%Annual Cash Flow: 15kSo its a great deal assuming you buy all the units at 161k.