@JohnAnderson understood.  

I may have mis understood your existing building.  

What threw me when talking to this lender is that she was the first that acted as if she understood the concept and Fannie Mae rules.

The second I understood the opportunities this business offers I was hooked.

Good stuff in this thread, exactly the info I've been looking for, though it seems to be contradictory to what I've understood previously.

The safest way I've understood is to perform a wholesale transaction under an option agreement.

I'm assuming that would mean an understood system of communication with the contractors, preplanned order of rehab, frequency of site visits/inspections, etc.  

There are a number of practices that can help defer taxes or help get preferential rates, but real estate has been bought and sold for at least a few thousand years before anyone thought of the United States or the IRS, so it's fairly well understood and they generally will make sure that tax is paid on income earned in this space.You'll want to figure taxes into your planning- the way you structure your business may help or hinder you through when the income/appreciation is recognized.

The deals legality also might depend on what state this is all in too.The last REI meeting I was at an Attorney and a Investor that understood a new piece of legislation that throws into to question even assignment in the state of Arkansas.

With that understood, here's what *I* would do in your situation.