The seller discounted the price of house a bit but asked us to transfer the lease to us (they wouldn't take it with them).

If you buy properties at a discount like I do, you can use your purchase prices to significantly reduce those assessed values, thus reducing your property tax bill and increasing cashflow. 

Most banks are not set up to own homes, and are often motivated to sell you the home at a discounted price."

My plan is to get a discounted bid due to the proximity of the jobs and the work will keep his crew busy for the next 10-12 months.  

I already expect all my expenses to be subjected to the 40% discount.

You then build a projection for your cash flow for however long your hold period is and then do a discounted cash flow analysis.

Determine your approximate Rehab costs and subtract it from the ARV to get your offer price.Use all the negative things (Vacancies, poor condition, Rehab/Pending CapEx, lack of data) to justify your discounting the price.  

You don't want to pay retail, you want to get it at a discount...

Many cities/towns list this right on their websites if you dig deep enough.

First investment property was a foreclosed duplex in West Allis bought in 2009 at what looked like a $90k discount.