If it is truly private money lending it will vary from person to person and be different in different geographic locations. 

But I am trying to understand here - the various descriptions of prohibited transactions all anticipate the movement of funds OUT of the 401k, or the expenditure of funds jointly between the 401k and a prohibited individual for the benefit of the individual, NOT the benefit of the 401k.

Based on your description, I think I know what location you are talking about.

The description was short, terrible pictures, and non responsive to offers through my agent.

-Pete I'd need to see all the actual tax returns for myself, and not merely a description thereof, to say for certain.

Most buyers would take MANY YEARS to get a fair amount of diversification in real estate.The main type of diversification REITs bring which the author is focusing on and what you may not be considering closely enough is geographic diversification.Also rents are not in lock step with other investment classes. 

The seller has no reason to give it away for 20k if he can foreclose and collect 60k, so it warrants a higher sales price.The BK example above doesn't seem to fit this description and is most likely a pass. 

In case nobody handed it to you yet, here is YOUR JOB DESCRIPTION:1.)

Do you mind me asking the geographical area that is 30 minutes outside of Austin?  

One could do this with any home that has a Mother-In-Law suite/unit like capability.To answer your two non-geographic specific questions:- HOA's are all over the map with regards to what they will allow you to do.