Only for those individuals may there be a suspension of the 5 year look back to allow an additional 10 years.There is no general automatic pro-ration after the 5 year period.  

We've worked with may clients who will move out of a primary residence that has more than 500K in gain so they can combine sec 121 and 1031 to make all of the gain tax free or tax deferred.We've also have numbers of clients take advantage of the 1301 - 121 conversion to ultimately turn part of the tax deferred gain into tax free.Your situation is somewhat unique in that you're wanting to combine both of those strategies and take the 121 pro-ration tax free and 1031 the other pro-rated gain.

Doesn't make rational economic sense. 

I don't have the experience to know if new furnace/water heater/windows/appliances would alter the appraised value to make this a rational deal under these circumstances.

If we have a 100 year history of commodity prices hovering within a certain level and a current price 70% above the historic baseline, it means that the market for this commodity is not rational in any way, shape or form.

Hopefully, your "fair share of horror stories" will help keep you rational.

If they were provided a list that said they didn't leave any damage, I don't see how you will rationalize keeping the deposit, unless you are claiming undiscovered damage.

Think of it as flipping "cash"...using the properties as the vehicle your cash is riding...in and right back out of these deals (with friends).That is how money works...and it follows Golden Rule #1 of my 2 Golden Rules of REI:"Under no circumstances, ever, for any reason or rationalization, ever....EVER,...Spend your cash.  

I would think that the big hurtles would proving my NOI could cover debt service coverage ration, and getting an appraisal that would establish LTV.

Modesto is finally seeing the recovery the rest of the state has been enjoying for years, so the price-to-rent rations "at home" are no longer so appealing.