Their income is taxed at ordinary rates.

@Pauline Misiak  Dividend payments made out by the REIT are taxed to the individual ordinary income, unless they are considered to be qualified dividends which are taxed as capital gains.  

For instance you can set up a fund that invests in real estate via syndications that offer tax benefits to investors where REIT produce purely ordinary income.

Simple buying apartment buildings 5+ units,  "semi distressed", class B neighborhoods,  using very ordinary traditional financing (20% down, 20 year, reset every 3-7 years, etc.) -- Why?

I know screening will take care of a lot of that but we are also are doing small, value-add and curb-appeal additions to attract them as well: we added a fence to the property and separated the yard and patio for each tenant to have their own private space.Would love your tips/tricks -- Any cheap upgrades that tenants love?

If your intent when you sell the old property is primarily to resell then no, you would not qualify for a 1031 exchange and quite frankly it would not be good for you since you'll be trading the long term gain of the old property for ordinary income on a flip in a short period of time and paying exchange fees on top of that.You're working backwards to look at options and that's good but when doing a 1031 its important to start at the beginning with your intent and then let the situation as it unfolds determine whether your intent stays the same or changes.

The profit on your flip will be taxed as ordinary business income at your ordinary income tax bracket rate.  

I have read a couple books, I'm extremely quick with numbers and I have spent some legwork around the area.Here is my possible deal:House is listed MLS for 45kWent by, looks pretty solid, a little cosmetic damage on the outside but still a 1k sqft, 1car detached and patio w/ bd accessHouse sold 16 months ago at 80kHouse is appraised by the county at 70kNeighborhood is pretty decent, Zillow lists most houses on the block at 90kRecent sales also support this.My questions:County tax records indicate that a mortgage company is the registered owner and has paid taxes on it, but I cannot find it in their REO listings.

I am certain that's how USD will go, will seem like any ordinary Thursday and all of a sudden, it just all comes unwound. 

But now there is a lifetime exemption in 2017 of 5.5 million dollars, 11 million for a couple, so for most ordinary folks, that should be sufficient to avoid the hassles of annual gifting.