I imagine I can get his wages garnished or maybe collect from his tax return.  

After assessor comes out and consults with insurance company, they'll send demo guys out to come do demo work and remove wet drywall, insulation, etc. they'll usually put down dehumidifiers and let the place air out a bit to see what actually needs replacing and what was able to dry out.

Before you close, can the rent from your buddy and the midterm tenant cover your mortgage, taxes, insurance, plus a bit extra?

To make a new property cash flow with current prices, interest rates, taxes, and insurance, you're putting at least 40-50% down.

Immediately, I performed a Roth conversion, and instead of paying taxes on $50K I'm paying taxes only on $21K.

The only part that Property 1 pays on that loan is the escrow for property tax & insurance for Property 1.Thank you for your insight.You need to look at purchase price to determine cost basis, not how you financed the purchase.

Since they're low income/tax credit, they just don't make the kind of money needed to pay those huge premiums.

Start small and aim for properties that cash flow well, even after accounting for taxes, insurance, and repairs.Most importantly, keep taking action!

They also have the Mortgage Tax Credit.

You'll be able to defer a bunch of tax with this purchase.