I wouldn't be opposed to having a little skin in the game (closing costs, inspections, etc) I would be living there paying market rent and doing the improvements myself.

I know that there are issues with any house, but it seems to us as if we have had way more of our fair share of problems since we acquired it.

I've been hosting MTR's now for 5 years and have worked with most guest avatars and my company helps independent hosts make those B2B connections so I'm fairly well versed in the insurance displacement aspect.  

Quote from @Jeff Roth: Hi Lina from Texas-Congratulations on your interest in investing in mid-term rentals and you are wondering how and where to get started.I get this question frequently from investors.Sometimes and investor is looking to keep their property cashflow positive as insurance and taxes have squeezed cashflow by turning units into mid-term or short-term rentals.First off, ideally, the property will cashflow as a long-term rental should something disrupt the mid-term rental model.You will also want to have the property be near where there would be a demand for mid-term rentals (hospitals, universities, research centers).Monthly rents for mid-term rentals are about 20% (+/-) higher than unfurnished similar long-term rentals.There are property managers that will manage mid-term rentals for you and I always advise my clients to use property managers to keep their investment as passive as possible and for compliance issues related to Fair Housing Laws and local regulations.To Your Success! 

I can likely do this loan, but in all fairness, with this type of loan I suspect a community bank is going to beat me out.

I’m a real estate investor and the owner of a fairly large property management firm here in Texas.

In your case, changing the property from a rental to your primary residence constitutes a change in use.The depreciation recapture will be calculated based on the fair market value of the building at the time of conversion, not including the land value.Since you're tearing down the existing structure, the entire amount of depreciation taken over the past two years will likely be recaptured, as the building's value at conversion will effectively be zero.The recaptured amount will be taxed as ordinary income, up to a maximum rate of 25% for residential rental property (Section 1250 property).

UNTIL YOU SELL THE PROPERTY... then the cap goes away and you are taxed on the fair market value of the house which is usually the new sales price less maybe 15%.  

It depends on who you're hiring but that seems fairly standard.  

If you PM me I can get you in touch with a processing company with fair rates.