OMG, please do  NOT take money out of your 401K to pay off a mortgage, especially not for a rental. 

They pay themselves good "salary" from the loans they get.

From what I understand, a 1031 exchange doesnt apply in this case, and so I will have to pay short term capital gains on the appreciation ?

I'm assuming I would have to pay it off if I won the house. 

Another option is to invest in the market instead of paying down a mortgage.

If you pay cash, you don't have to cover the cost of a mortgage.

The seller's LLC pays capital gains tax and depreciation recapture, while the buyer's LLC uses the purchase price as the new cost basis.

One would think that a bidder would pay $45,000 in my example (since they are assuming the first mortgage), but they are actually bidding $225,000.

The price you pay for being part of the Disney World spoon-feed of guests is that the barrier to entry for profitable STRs (ones that leverage close to or max LTV) is very, very high.  

Birmingham’s market is diverse, with various areas offering different levels of potential and risk, so getting boots on the ground can be one of the best investments you make in terms of time and money.I’d be happy to connect and share more about what I’ve learned from my experience managing properties in this market.