Is an itemized list from a contractor and proof you paid them enough if questioned about a passive loss? Or do you need actual receipts or materials etc?

We have been wanting to invest in real estate for years and are determined to push through any obstacles but want to be smart about it!

Best advice I got from a CPA once was "Everything is deductible, until the IRS questions it and audits you." 

A red flag is something that needs to be investigated to determine if there is mortgage fraud or not, it happens all the time. 

How I can determine if I am way overpaying for this property??

The rents used in determining self-sufficiency can actually include the unit you are going to occupy as well.

I'm trying to determine the best way to structure this real estate deal with my father-in-law(FIL). 

Unless you want to be part of a lawsuit to determine the legalities of this you may prefer to not get involved.  

The purpose for this post is to get in touch with local investors, expand my real estate investing knowledge, and determine my next steps to becoming an investor.

Rental income).Your income can either be considered FDAP(Fixed Determinable Annual Periodic) or ECI(Effectively connected income).You also want to understand how having a US LLC will be taxed by Canada.