Putting your other expenses, rent loss and capex at about $4500 on about $20K gross income.This seems tremendously low to me.  

I don't think I saw this question asked yet, have you been to the permit and zoning office yet to see if this tear down and new build is feasible? 

There are extenuating circumstances where a person can have lost a job, had a loss of a business, medical issues, or divorce. 

I loss my job and now the property need a new broiler.

I mean if I say I am ready to refinance for 200K and bank take a loss of 20K as they will loose much more in foreclose sale anyway.Is it valid assumption?

If you work the numbers before buying, depending on the market, you could feasibly live rent free and even possibly get some positive cash flow on top.

I am not and will not be paying on the mortgage on my boyfriend's home, so it would be feasible.

In fact, I've been able to use losses (and these are true paper losses due to depreciation) from my investing to offset my day-job income. 25k per year every year after year 3 (it took a few houses to get to the 25k number loss).Bottom line is that if she were to cash that 401k money out and take the 200k and if she could qualify for the loans (that was one of the big caveats I put in my post), she would come out WAY AHEAD with real estate than with leaving that money in the 401k.

Tell your roomy that you can lose your lock in on any interest rate, that such is a real financial loss, being a CPA she should realize she needs to act or become responsible.....if you'd take it that far.

I am first trying to determine if this is a feasible investment for my current situation.