However, if you moved out of the property after 1 year due to unforeseen circumstances, you do the pro-ration:     1 year out of 2 years = 50%      $500k max x 50% = $250kso now you can have up to $250k of your gain tax free.But if you never lived in the property, your ratio is zero days out of 2 years = 0%, resulting in zero exclusion, even with the unforeseen circumstances checked.Now, some technical stuff for the tax geeks. 

My wife is on the board of our current home, which has been a huge help in trying to get rational rules put in place. 

It just feels weird renting out my childhood home so I need some calm rational thoughts.

I look at 3 data points:-Medium House Income-Population Growth-YOY Job GrowthHere's the rationalization around that.

I am seeing a number closer to $3,600,000 at a 5.7%  assuming .05 vacancy and a 28% expense ration.  

I am denied of financing on my primary home on the basis of debt to income ration with the strange rule that they are calculating the rental house expenses (Principle/interest/Taxes/HOA/Insurance) 100% for me but the rental income is considered only 50% as I have a partner. 

When you do it, it costs you money.Cut your loses, don't rationalize your way out of the game. 

Talk with local brokers, property managers and other investors.In addition, you watch and learn the market in your area: 1. watch what other MF properties trade for 2. watch what rents for other MF properties do3. watch what vacancy and collection rates areAnd slowly over time, one can get a sense of the market and start to make some reasonable rational projections over time.My final thought is to understand - all of this analysis is simply making assumptions about what will happen in the future.

I rationalized the discount to myself by saying it may be difficult to get a new renter in, but it still may have been a little premature. 

I tried to rationalize this by saying I do not have any other debts ( no student loans or car loan), I live a simple life, and it is below what I qualified.