We aren't trying to do anything out of the ordinary here.

@Cassandra Popli The rent you pay is an ordinary and necessary expense for you to rent the property.

Therefore you would be subject to SE Taxes and have the asset taxed as ordinary income.Take an example where the property is purchase in the Owner of House, LLC. that pays a preferred return of x% then returns capital and profit in proportion to the original contribution.

Depreciation expenses can offset any ordinary income and capital gains can be deferred through a 1031 exchange.  

@Andrew Bellini  since you're a W2 employee without any other passive real estate income, depreciation losses from RE syndications can't be used to offset your ordinary income.

I know  where my girlfriend used to live they always had to pick up right away even if its right next to there patio not in anyones way.  

It's worth pointing out that OP originally mentioned investing in 401(k) which would mean interest, dividends and capital gains are deferred until the money is withdrawn (usually after 59.5) And then, any withdrawal is taxed at ordinary income.

They want to tell me to plant trees in my backyard and put in a patio.

Mostly small improvements along the way, but the biggest value-add project was in 2017 when I did a fairly major remodel, adding a front patio, redoing all floors, both bathrooms, added air-conditioning, etc.

Then google "2012 tax brackets" and figure out your rate.If the net taxable income is negative, you may be able to use that passive loss to offset some of your ordinary income.