Buy and hold is tough unless you can do a value add. 

You said you can prove the seller had knowledge, looks like he admitted that by saying it was fixed.

My initial concerns:  You profit expectations do not seem to include marketing costs, closing costs and suchBigger concern-  totally hearsay but if the project is in Kermit,  the Building Inspector is not a big fan of outsiders and could make your life tough so go buy him breakfast a few times !

Cash flow around here is usually pretty tough upon initial purchase unless you get a smoking hot deal, force a ton of appreciation (I.e buy a shell and put more into fixing it than you paid) or put down a really big downpayment to lower your financing costs.  

Since then, I’ve become absolutely excited and obsessed with real estate investing, and read numerous books on the subject.The book learning was great, but some things were tough to learn from a book.

It's going to be really tough to use those retirement funds if your looking for cash flow in your hand.I do know of a couple of condo's in that price range, in Tempe/Chandler area that the seller is willing to carry the note with 20% down.

Couple other things: - get weekly vacation rental liability insurance, most normal policies will not cover claims if they can prove you rent more than 3-4 weeks a year.

If the seller is willing to pay the difference then it's not a short sale but it's a little tough to make that happen so that you make a profit that's literally coming out of your sellers pocket.

This REO got me thinking a bit so I did some research on BiggerPockets about REO's and feel that although banks are tough to negotiate with if you approach it the right way you have basically the same shot you do with a private sale.  

If it was contested, how did you prove it?