@Edward Kanive It will be very hard to prove to the IRS that you and your wife meet the standards that @Taylor L. listed above. 

The standard contract isn't assignable unless everyone agrees.

Section 8 adds a standardized lease, annual inspection and a subsidy to enable the prospect to afford your rental.You and Tenant sign your lease and the S8 lease. 

If not, you want to consider a standard construction loan (or see if you can phase-in your hard money loan) so you can take draws as you need them. 

Ideally, I am looking for someone with familiarity with investing in out-of-state rental properties, but other than that, it's a relatively simple/standard situation.Robert Leonard

Trying to see if these are the standard fees? 

Did they discover some horrible issue that they didn't want to deal with?

That all depends on neighborhood, purchase costs, holding costs, expected rent, standard rent in your area for a 3 bedroom, etc.

This is because the state income tax will already bring them to $10,000.They may get a benefit at the state level for the property taxes.A discussion should be made what type of house they would buy and if they would have any itemized deductions(Medical or charity) besides the mortgage interest and Income/Property taxes.Otherwise, if the itemized deduction is marginally higher than the standard deduction, it wasn't the best tax write-off. 

Purchase price: $120,000 I was the Exclusive Buyers Agent in the transaction.Units were separately metered for water/sewer which was a great plus discovered in DD.The downstairs 2/1 unit was delivered vacant but this was the lowest price/ SF transaction around Olympia in the last 20 months which has great upside on rents and value with it's close proximity to USC and downtown.