Getting a 10% return does not seem that bad given my strategy to pay extra principal payments through the extra cash flow per month and reduce my mortgage duration.

I also have reduced my coverage a little from what they quote me on replacement value. 

Can you reduce the downpayment, collect the cashflow then finance in about 5 years?

Any amount above that reduces their lifetime exclusion ($5.45 million per person) by the amount of the excess.The gift (of any amount) is not income to you nor a deduction to them. 

If they are still your strongest candidate, think about what it would take to help reduce the risk of the same thing happening to you.

I don't own yet, but I have been putting these into rentals that I manage.We are in California where there have been drought conditions, so it has been more of a focus.I like .5gpm aerators for bath faucets and wouldn't suggest going below 1.5gpm for kitchens.Some properties have had low flow toilets, shower heads, and a circulation pump added to the hot water heater to reduce water waste.LED lights have gone into some of the properties.  

I did get the earnest money reduced to 2k.

Of course, there are downsides like locking the money up (to some extent), the limited investment options likely offered, and reducing your take-home pay but they're often outweighed by the match.  

Many Realtors will suggest purchasing a property using a FHA Loan, to reduce your out of pocket money.

Paying off a mortgage reduces the cash flow on a rental due to the fact that the equity expense (opportunity money value) on the rental income should be a minimum 10% off the top.