Might make offer tomorrow on Condo. Advice is appreciated!

[Shane M]

I currently live in a 3 bedroom maintenance free townhome. My neighbor, in the other 3 bedroom in the building (4 plex), is selling her home. She may not be the best deal in town, but her asking price is the lowest in our neighborhood.

I'm considering having my realtor make an offer on it tomorrow. Running all the numbers, I figure I'll have a positive monthly cash flow of about $75 after paying P & I, HOA dues, Taxes, and Ins. That's not much, but with property values depressed, I hope to aquire equity mainly through appreciation over the years.

Here are my questions...for now :)

1. I'm currently liquid enough to weather a few vacant months, but even so, should I look to have a higher positive cash flow?

2. My realtor suggested I buy the property to live in myself and rent out my 3 bedroom townhome. This way I can get more favorable loan terms (lower interest rate and down payment). Here's what I wonder... I've got about 40K in equity right now. If I decide to sell it (the property I'm currently in but plan to rent) in say 6 years, will I be able to roll ALL of the equity over into a house without paying capital gains tax? And yes, I've lived in it for over 2 years. I'm not sure how that would work since a renter will occupy it for the latter years.

3. Any advice on what else I need to think about?

EDIT .... I just thought of another question I'd like to ask. If I buy this property, how will it affect my borrowing power for a future investment or personal home? I wouldn't think it would change my debt/income ratio since I'd have a positive cash flow from the rental income, but I would still think my ability to pay a loan back would be a greater risk. This would be due to the fact I could have vacant rental. Am I looking at this correctly?