Friends wanted to rent it and so we did and they always paid on time.

If so I'd lean on that and maximize the piece that creates the best ROI.

You assign the lease option agreement to a tenant-buyer and receive an assignment fee without needing to close on the property yourself.

You can contribute up to $69,000 combined as an employer and employee depending on your income.

On the potential tenants website there is usually a real estate department.

They are known as the Winthrop Factors-The purpose for which the property was initially acquiredThe purpose for which the property was subsequently heldThe extent of improvements made to the propertyThe number and frequency of sales over timeThe extent to which the property has been disposed ofThe nature of the taxpayer’s business, including other activities and assetsThe amount of advertising/promotion, either directly or through a third partyThe listing of the property for sale through a brokerThe purpose of the held property at time of sale; the classification as an investor or dealer is determined on a property-by-property basis.To me intentionally buying a property to renovate it to resell it for profit, twice in the same year, and opened an entity to do it in ....is going to be ordinary income and not capital gains. 

@Alec McGinn research the rental market history.How many units typically on the market?

I've personally done just about every rehab scenario, properties I've lived in, properties bought as investments and even properties bought at auction.You've gotten good advice from folks on this list.

Any advice on some additional improvements that could be done to potentially fix this problem without having to buy a new water heater?

So I'm on the fence.