The appraiser has indicated to me that he not only plans on writing his report to illustrate a 2 BR, but also that he will reduce the square footage by 30% due to the non-permitted additions.

Im not trying to be mean, but with every post in this thread Greg illustrates a huge lack of knowledge of how the industry works.

If the house stayed empty (unlikely, just mentioned to illustrate a key tax concept), you would owe capital gain taxes on $400k minus $310k minus closing costs on both ends.

Let me illustrate below for clarity.Original Purchase Price - $73,000Adjusted Cost Basis after several years of depreciation - $55,000Sale price - $100,000Federal LevelAt the federal level this individual would be responsible for depreciation recapture from $55,000 up the purchase price of $73,000 at (25% federal level) and then Long Term Capital Gains tax from $73,000 up to the sales price of $100,000.State LevelBusiness Profits Tax from $55,000 up to the sales price of $100,000 @ 8.5%.Can anyone provide any clarity on this state specific tax situation?  

This is an illustration of how cheap vs. frugal works IMO.So, am I frugal?

To illustrate my point:SuperH.

I give illustration, back 5-6 years ago, the condo in this area is 500k, comparable SF is 800k.

Some companies also have only recently entered the IUL market and don't have a long history and their illustration may be too optimistic.

The quality of them PM is one thing, but it only gets amplified by the quality (or lack thereof) of the properties and the resulting quality of the tenants.If you were to illustrate this with math it would look like this:  0.1 x 0.1 x 0.1 = your result.The answer to your question is obvious, but frankly easier said than done: buy quality properties with few repairs, they will attract great tenants with few issues and even a mediocre PM will do just fine.The allure of cheap cash flowing properties is real: After I had invested all my original capital I bough a few cheaper properties in Milwaukee (this was around 2010, so they were really cheap) and fortunately traded out of them within a couple years - it taught me a lot!

The process is illustrated below.The first step is to select the location.