The depreciation is taxed at maximum 25% or lower based on your marginal tax rate. 

That way we would have the time to get someone else in on a lease option after we bought something else to live in, and have a margin in the rent to make a monthly cashflow. 

If it's a marginal deal and you have little to no experience you should probably just fix your credit.The money also has to come from their funds sourced from their asset statements over the last 60 days in order to get approved by the lender.

Welcome, @James Hill IIISoCal can be a tough nut to crack for newbies.A couple years ago I mailed out lots of letters to homeowners across LA County with no luck.Then I tried rural Kern County and got a deal from a distressed homeowner in California City.The margins were not as large as they would've been in LA or OC, but I was able to rent it out for 2 years before fixing it up and selling it for a decent gain.Also, have you considered an owner-occupied small multifamily for your first deal?

If that is based on comps, then you probably already have a lot of that equity with doing zero work, the work would only add marginally more equity, so in theory you could see what type of HELOC you could get now instead of spending $30k on rehab and then seeing.

I don't have the capital to lend him, and I know most private money and hard money lenders are in it for the higher margins on short term loans. 

Add in rehab  and the margin or rent to price ration isn't attractive anymore. 

And most times, that leads to lower acquisition costs and higher potential margins.

I'm excited about house hacking, but Southern Florida margins look too thin,  Jacksonville is hot but looks super-competitive with a lot of cash buyers, Orlando too expensive and Tampa looks  like  a maybe. 

Given that their top marginal tax bracket is about 45.4% for Federal and State income taxes, they get about $1460/month in tax refunds from the deductions.