I'm currently in a similar situation and I've started producing leads worth further exploration by finding them in alternative ways to the standard MLS listing.

However, the seller does not want to produce a Certificate of Compliance or zoning.

Even if the lender is required to "possess" (Not the same as "produce") the original note, don't count on them losing it as a "Get a home for free" card.

Marvin.I think that selling your house and moving to a house where you can afford the payments is a smart move.That will allow you to save you cash which then you can invest that cash into assets that will produce cash flow for you.Your personal residence is not an asset.

Right now it just sits and the owner bales some grass off it, not producing much income.

So extra depreciation might not produce the same results as you hoped for. 

Not a tax advisor, but generally pretty simple.Once you take a member draw into your personal name (post-tax), you can do whatever you want with it.If you're buying RE in an LLC, I'd be sure to keep them in a separate LLC from your primary income earning activity that produced the cash.  

Does your state produced a standard template form?

I think every dime of cash flow the property produces should be saved in order to scale up.

I ended up holding onto two income properties in nice areas of the valley and they produce minor cash flow today, but not significant and the property values are still less than I paid for them.