It's a lease agreement until the requirement is fulfilled.

Ask questions, get to know the renters, and document the condition of each rental so you have a record from that point forward and can hold tenants responsible for damages.Your offer to purchase should include a requirement that the Seller provide all documentation and agree to sign an estoppel certificate (also called an estoppel form or agreement).

Especially with most units requiring 3 different paints/colors: walls, ceiling and base/trim/doors.

Here in Philadelphia the city requires EACH of your rental units to be lead paint tested & certified every two years.

They want a local contact for the property which really benefits them not at all and since the role isn't clearly defined they don't require the property manager of record to be a real estate licensee even though to be a property manager within PA requires a license. 

I am not suggesting you can't acquire a BRRRR home (although it's more difficult right now with the higher interest rates), or you will necessarily fair better with the purchase that requires you to leave your $40,000 of capital in the property.

Yes, for a few reasons.1) local to you - you would most likely have an edge to start right where you are, since you may have better access to data and physically can go to the properties and/or meet investors in person, if need be, etc. 2) since the #'s are typically larger here (SoCal) you have the potential to make larger $'s !

I'm wondering if anyone has been successful at closing with this type of loan product and if so, what factors (credit/DTI/reserves, etc) were required for you to be approved?

The ability to make a cash offer and the absence of steps required to obtain hard money makes it easier.

This kind of revelation requires legal action.