I know my costs are average 13% of ARV with hard money (not 20% like the formula allocates).

The cycle of this and length of time varies by local market on a micro scale and then also by national factors on a macro scale.When the markets recovers these high appreciation markets attract speculators that drive prices up.When they also leave the market it drives prices way down.So California,New York etc. you have wild swings in value whereas say in Georgia we slipped in value as well but prices were not as extreme.Investors like cash flow because it is an immediate quantifiable income.Appreciation is a crystal ball speculative investment that you hope grows faster than inflation every year.I will say there is only so much land to build on for high density areas.So if you make a bunch of money at your job and have reserves than it could be a great long term appreciation play plus rents could rise at a fast clip.You have to remember every investor has a different plan.The investors who are my clients think differently based on a different set of goals and how they want to allocate time.

Maximum ExclusionYou can exclude up to $250,000 of the gain (other than gain allocated to periods of non-qualified use) on the sale of your main home if all of the following are true.You meet the ownership test.You meet the use test.During the 2-year period ending on the date of the sale, you did not exclude gain from the sale of another home.So, my thoughts now are, If I find a great property, rent my current house out,(1 year min?)

Unless it is effective 1/1/14 a profit and loss should be prepared as of that date for the accountant to prepare your K-1 to allocate gain/loss properly before and after the percentage change.Feel free to ask if you need clarification.

How would you allocate it? 

I offered a total package price and let the seller allocate the total amongst the homes as he wished.

If using property management, ensure ALL the rental income is paid to you , not minus their fee, you want to pay that separately as you do any other expense The rental income belongs to you, it’s yours to use how you wish to allocate any paymentsIt may only be $100, but if financing numbers are tight, and you have 10 properties, it’s $12k a year “more” rental income turnover Banks love turnover, the higher the better, they do not know if you made a profit, moreover, they do not care !!

I have seen people make the case because a property has just been rehabbed to allocate a lower cap expense number.  

I did allocate $6k in closing costs when using the BRRRR calculator.  

Dealing with tenants that have a personal relationship with the previous landlord is hard enough and never mind when they are paying less than market rent.Hopefully you factored all of this in when negotiating the purchase price, but make sure you are leaving money allocated for having to eventually evict all of the tenants.