Hi Mark, The payoff of a seller's note 3 years later is not considered to be a sale of real estate but merely a payoff of an outstanding debt, so it would not qualify for 1031 Exchange treatment at the end of 3 years. 

From some articles I have read though it sounds like exterior upgrades tend to have pretty good ROI, replacing the front door with a nice new steel one in a color that works well with the house, and new siding (or stucco or brick treatment) can be quite a good improvement in the look, that usually has pretty good ROI.

I ask because understanding the tax treatment of your gain will help you devise a strategy to use those funds.

Will this be eligible for tax free treatment as a primary residence after 2 years?

In all cases, I now want to hold onto a property for at least 13 months (and possibly longer if the aforementioned criteria continue to be satisfied), so as to obtain favorable long-term capital gains treatment on my investments.By comparison, homes in my area (Boise, ID) don't have the same economic investment appeal as homes in other areas (I currently focus on FL and IN).  

Because of a bed bug issue (all tenants left, whole building needed heat treatment, I was pretty heated myself...)- And many more...I am not necessarily richer than before I invested in RE but I'd say my life is somewhat richer...I am never bored.Please send me a message if like me, your parents are source of inspiration and if your love for real estate does not get tarnished by your "love" for bed bugs and dealing with ignorant lenders...

But as for tax treatment you might try Don McCartney Arlington who has done RE deals himself for like 30 years, and he is also a CPA for about 25yrs. 

At this late stage I normally stay mum until afterward, then have the work done (or a year's weed/fertilizer treatments via TrueGreen) and assess the charges against the deposit.Startup photos and careful photo-documentation afterward are crucial, as well as the need to use professionals for the fix.

Like Ch13, your lien may or may not have treatment under the plan.

I watch Flipping Vegas and I realize it is a TV show but it depicts terrible treatment of the contractors and laborers.