@Aaron Stern, I'm pretty sure about the 1031, but I'll leave it up to an expert to settle it.The reasons you don't just keep your current property are:You can greatly increase your cash flow (almost doubled in the example above, PLUS you had $675k to invest elsewhere.Your SFR has no efficiencies of scale, so you can do better by getting more units under 1 roof.Your current Return On Equity (ROE) is terrible--1.5%, just for the cashflow (let's leave appreciation, depreciation, mortgage pay-down aside for the moment).

@James Harris, I wouldn't think in terms of ROI, but ROE (Return On Equity). 

You're able to realize efficiencies of scale, reduce your risk, and scale faster.I'm personally not a fan of paying off your properties completely, because your Return on Equity (ROE) is usually pretty bad.

If you take the capital that you put in, plus the added equity, you can use that to buy a bigger property that ROI's the SAME as the ROE from the previous property.

Thus they'll finance more and your ROE is higher.Hard and private money are not necessary, but they are good options for certain types of deals if you wish to conserve your equity or you don't have enough of it.

A higher overall leverage ratio will siphon cash flow in favor of debt service, but it will increase your ROE if you are good at investing.  

I figure there will be an over turn on any property I get set up until things settle out.How technical can I get in the application process to mitigate certain issues before they happen, and remove or reduce these two potential problems in advance.

I'm almost 100% certain the  IRS won't try to redeem and/or overturn the sale.  

Check the Tax Roes if you have access.

One of the incident for which one of the homeowner had fake lawn installed on the front (that's being prohibited at the time) but was able to get every one to vote in order to overturn that restriction.