A few comments from my perspective (and after reading @Dan H. comments):I agree with Dan, and view this as a negative cash flow property as well, given that more than 20% down was necessary to make it work with what I suspect is a non-commercial 30 year note given the interest rate. 

After a showing we offer the perspective tenant to fill out an application. 

Let me address your questions and provide insight from a lender's perspective:1.

And from an investor perspective, there's nothing I want more than being able to put BiggerPockets in my pocket!

Quote from @Kristian Sexton: Speaking from a PM perspective if you were going through an eviction process they probably assumed that the tenant would just leave the property. 

Will the capital gains in this scenario be considered passive income from an IRS perspective ?

@Michael Nguyen I’ll share a different perspective.

As I said before, I'm just a local resident, and this is just my subjective perspective and opinion.

@Richard Benjamin Wilhite, @Bill B.makes some good points about loan terms and the strict identification rules for a 1031 exchange.I would add from a tax mitigation perspective that buying the largest property possible will give you the greatest amount of cost segregation possibility and at the lowest cost since it would be one study rather than several. 

That line, at least from my perspective, is getting a little long in the tooth.