I do intend to stay close to home - but home provides only annual opportunities and I’m looking for year round possibilities with tax deed properties. 

Then rent the bigger home out using a property manager, allowing her to possibly cash flow and maintain that asset and let it continue to grow in value.Encourage her to consult with a CPA or tax attorney to explore the best strategy tailored to her situation.

So if you buy a 5 bedroom house and rent the spare 4 bedrooms = you can still sell tax-free under the 121 (you just pay back depreciation) If you buy a duplex and rent 1/2 and live in 1/2.

Specifically:Will the lender only consider the rental income from the two legally zoned units, even though all three rental incomes are declared on your tax return?

In North Jersey, buying is difficult from my beginner perspective with high prices, property tax, etc.Barrier to entry feels high in my area.

It’s still relatively affordable compared to bigger cities, has strong rental demand, and no state income tax, which is always a plus.

If you are setting aside funds for capex, taxes, insurance, or other expenses that don't occur monthly, transfer those funds to Savings each month and hold them there until it's time to spend them.

Is your DSCR ratio greater than 1-meaning are you cash flowing (according to the lender's criteria of mortgage, property taxes and insurance (and HOA) if applicable).

I have a followup question - I will realize a lot of capital gain from this home in Idaho, so I think unless I purchase a new primary residence I will have to pay that capital gains tax. 

The sellers you are dealing with in these situations don't deal with prorating Taxes, or any other kind of prorations, that is what an escrow agent does.