Thanks ManoloI'm thinking a total square footage of 800 square feet.

Adding huge deck with panoramic views, but no additional sq footage.

(Based on square footage)We depreciate 50% of the property as a rental based on square footage.

Definition: A method of calculating a tenants utility usage based on occupancy, unit square footage, or a combination of both. 

Freddie Mac allows you up to 6 mortgages with an 80% refinance based on appraisal(new rule just changed this week), so in markets like Memphis where the acquisition cost is low she can actually use a turnkey provider as Charles Moore was suggesting, acquire a home below market value(using a private lender) which is renovated and rented, and then refinance it which would create a very low out of pocket cost situation for her.Depending on how serious she is about doing it, or how committed she is to reducing her tax liability, she could(given her age, I am assuming she is retired) structure her real estate business where she could qualify as a 'real estate professional', and this would allow her to depreciate things like her 'home office', which is a specific amount of square footage on her primary, as well as take the mortgage interest write offs on loans plus depreciation, and other goodies like meals(when applicable), maintenance, and so on. 

I looked what is on the local MLS and it varies from 170k-400k for the same square footage.

I will offer fair market value of your home based on homes sold in your area with the same bedrooms, bathrooms , and square footage.

What is the heated square footage?

Divide out the square footage and be careful it's heated not total.

Reno is flooded with short sales, preforeclosures, and foreclosures, but when I look up comparables on the MLS or Zillow with similar bed/bath and square footage in the neighborhood, they're sometimes all over the map.