But I did all new appliances, granite countertops everywhere, stained cement flooring, new doors, electrical box, recessed lighting, big backyard shed, gutters, paver patio etc...you get the idea

I've been on this board since 2010 and I have tried to find an ordinary Landlord that lost their property in a lawsuit.

FWIW, we had some extra pavers after a patio was installed about 15 years ago.

Perhaps the assessments were outstanding and should have been paid (were owed) by the seller in the ordinary course of owning property subject to the HOA bylaws.

Such entity in the ordinary course of its business must be engaged directly in real estate management or development activities.2) Expenses related to the real estate will be paid by the corporation.3) The real estate will not be used for personal use.4) There may be periods of time when the 50% test described in 1(a) above is not satisfied.

There's a massive difference in marginal ordinary income rates (especially in California) on $1M today vs. $60K per year in perpetuity.

You could enclose the front half, and leave the back open as a covered patio/Enclosing part of it would also add to the sq footage, so you may get some money out of it as well. 

Always make sure they also have skin in the game.Other option would be to invest in yield based syndications, which are similar to private lending as you get interest only payments back monthly, do not have to worry about finding the deal, and the returns are very similar or better if the sponsor structured the offering in ways that could provide tax preferential treatment (dividend vs. ordinary income). 

first I am not a Tax expert, however, we use an LLC and the profits are considered to be ordinary income.

Transferring funds from a 401k plan to an ordinary LLC would typically be considered a distribution, @Luke McMullen.