My friends thought I was crazy for going through such a headache for an extra $200 a month.  10 years in, with rent raises, and a refinance to bring the payment down, now that property cash flows $1600 per month, and has gone up in value about $170k.Now of course part of that equation is having bought it as prices were plummetting during the worst housing crisis of our lives, and living in a great market like DC, so the numbers look better than most can realistically get. 

That's understandable but I wouldn't forgo the huge benefits of diversification (including on the currency) and getting higher return overseas just because of the inconvenience of a potential tax audit.

We've been homeowners for going on 3 years now and, prior to purchase, we invited a friend to rent the basement of the not-yet-identified house.

Would it be a loan for only the construction period or a single close construction loan, in which case I will have to forgo the fantastic 2.25% rate that I got for a 5/1 with Wells Fargo.Which banks are good for such kinds of HELOC or construction loan?

Or do you forgo the favorable tax treatment? 

If the tenant is happy and is willing to continue paying rent then you can forgo the rehab until he/she decides to leave.

Honestly, unless you're buying this thing for a song, I don't think it's worth it.

@Tommy McGraw very cool concept, I for one really like the logic you laid out for going with Condos and not Apts. 

I penalize for going over the schedule. 

If that does fall through and they want 20% down as I have heard like a song on repeat, then that will definitely get revisited.