An in-kind distribution is real. The IRA can transfer the deed to you personally, and at that moment the property stops being an IRA asset. From a traditional IRA that transfer is treated as a taxable distribution equal to the property's fair market value, so a $200k house coming out is a $200k distribution on your return in that year, cash or no cash. That's why the timing of it is a conversation with a tax professional rather than a decision you make on your own.
Once it's out and titled in your name, the prohibited-transaction rules no longer apply to it, because there's no IRA involved anymore. You can live in it, paint it, whatever. The rules you keep reading about only bind the asset while the IRA owns it.
Roth and traditional differ here. A Roth IRA has no required distributions during the original owner's lifetime, so a Roth can hold the same rental indefinitely and the rent just keeps compounding inside it. A traditional IRA has required minimum distributions starting at the age the current rules set, and you should confirm that age and the calculation with your tax preparer rather than a forum.
On valuation: the custodian reports the account's value to the IRS annually and won't guess at a house price, so they'll ask you for a supporting document. Many accept a broker's opinion of value or a comparative market analysis, which is often a few hundred dollars or free, and some require a full appraisal at $500 or so. Ask your custodian in writing which forms of valuation they accept before you buy, because it's their policy, not a single national standard.
The part that bites people is cash. A required distribution has to come out of the account, and if the account's only asset is a house you can't send the IRS half a bathroom. Either you keep rent accumulating as cash inside the IRA to cover it, or you take the whole property out in kind and absorb the tax that year.
