Plus it's a portfolio loan, so there's no restrictions on what I can do with it.

this is a complex issue get legal advice

Minimizing or not paying taxes on rental income, legally obviously, just making sure there aren’t simple things I should be doing.

And by a small operator, I am referring to contemplating getting started and researching whether this could be a viable and legally acceptable strategy for an individual looking to do a few deals a year, but potentially exceeding the magic state set number for private sales.

Could I ask how involved was your process of investing, how much did the RE agents help in all the process (finding properties, negotiating price, arranging inspection, paperwork, legal, etc) or was it mostly work you did on your own?

They were likely aware of the lien, but did not anticipate how large the late fees or legal fees had accrued. 

Bringing in an equity partner requires legal counsel.

@Jay Hinrichs Out here with either HML or private money you will definitely be paying for legal -- title exam, preparation of loan docs, possibly more. 

With that income you can legally with right strategy pay close to 0 taxes. 

I checked the permits on the building and have not seen any pertinent to the conversion, so I am assuming it was not done legally or potentially up to code and certainly not with proper zoning approval.