Looking to end this rat race and go full force in RE Investing myself.

I was forced to hire a lawyer and threaten a lawsuit.  

I strongly advise you inform him you will allow him out of his lease and you will want to hope he accepts the offer and moves.This will come down to your business or his, one will be forced to give and I guarantee it will not be his.

One is forced to sell this asset at exactly the wrong time to raise the cash needed to meet the margin call. 

In Mass, unless you are currently or have recently been doing construction and updating, or there is some other sort of visible and clear life safety violations from the exterior, the local authorities cannot force you to randomly upgrade things such as your windows to bring them into compliance with today's current codes.

If he's able to do this with a four bedroom property it will be reduced even more and he may potentially be able to live in the property for free / next to nothing.By using this strategy, my client will be able to control an asset for far less than it would normally cost him, and still receive the tax benefits, appreciation, and principal paydown of the loan.Plus, by having reduced monthly expenses, he'll be able to pocket the extra funds he's saving every month and use those to fix up the house and force appreciation or save as a down payment for property #2 in a few years.Depending on your financial situation, you may also be able to do this for a residential multifamily property (2-4 units) such as a duplex, and that way you can have one side all to your self if you value the extra privacy and space.This is just one way to get started, but there are many more depending on your experience, comfort level, and financial situation.Be sure to soak up the vast amounts of knowledge here on the site, and ask any questions you may have if you get stuck or need some advice.Best of luck!

I would like to keep that going until forced appreciation brings the LTV to 65% at which point we could refi with a bank, and hopefully start pulling out cash through refis.Obviously I would negotiate the best deal I could, but as a hypothetical lets assume that the seller will not sell at a discount. 

It would seem to me that this 1-2-3 punch of changes would significantly affect how I would have to do calculations for buy and hold properties, forcing me to estimate taxes in a new way really tanking cash flow. 

However, by now, even with the 27.5 straight line method, it would have been depreciated down to zero.So my educated guess is that the entire basis is recaptured under 1250 rules (25% capital gains) and zero under ordinary rates.Could it be that we're still forced to apply ordinary rate to some part of it?

If for whatever reason she (or you) want out (or forced out), then you have a big mess on your hands.