Maybe at the 5 month time show them a few affordable choices and let them go ahead and pick.Be sure to follow through with what ever time frame you give them.

We were raising rents then while MF lowered or went vacant.

Home possible has lower MI  compare to regular conventional loan and lower interest rate. 

I don't know much about that market but I have worst situation here in my neck of the woods, so I would say 8% cap with 11% COC is much better, but then you have to weigh in other factors and see if you can either increase the COC by lowering cost or increasing NOI thru some value add.

In addition, if you get a home inspection, typically that is another point in the transaction where you can use the results to negotiate for repairs or a lower price.

Currently the title company is doing the tax certificate process and he owes $5300 to be exact, Is it possible or likely to instead lower my offer to $2000 and settle the taxes with the city?

Can I just lower the ceiling (hang drywall 2" lower than current ceiling)?

This is not as intriguing to me because the ROI is much lower.

Hard money lenders charge higher interest, but it is usually anywhere from 9-13%, so it would STILL be lower than the option you chose this time. 

LOL.. and those folks don't post on BP.. on BP its all blue sky rentals are the way to financial freedom quit your day job.. live the life you deserve etc etc.. well for some for sure.. for many NOPE.. they are like why did I do that.. and they exit no matter the loss.now this is more prevelant in the lower value asset markets.. not all markets are like this.But I look at when I started hard money lending in 01 for turn key and I started in Detroit.. the homes there appraised at that time for 120 to 140 each rented for what they rent for today 800 to 900 in those days the .05% rule was fine.. we loan 80k as a HML .. well those homes tanked as you probably know many went down to less than 10k in value.. thankfully the 200 plus I did there I got refinanced out of them all. but you know long term lender lost their lunch and so did most of the investors in those days.I am not prediciting another major meltdown.. but even  break even is not a good position to be in with rental properties in my humble opinion the risk/reward and hassle factor just weights on you.. but I know I am in the VAST minority in my thinking.So my thought is you really need to get these things paid for and keep them forever.. but life happens and I would say 80% of people that have that thought process going in never make it past about 7 or 8 years.