@Patricia K.The income from private lending will be considered interest income and unfortunately does not qualify for any deductions associated with owning an investment property.

My bet is he's referring to the fact that he can't qualify for a mortgage on a new house for some time.

You can count potential rental income to help qualify as well.If you are going to occupy, you can get a primary residence with as little as 3% down (conventional) or 3.5% (FHA)I've never heard of a mortgage company checking a property to see if you live there or not.

She won't qualify for a loan at this time, and we would most likely split the downpayment.

Typically with commercial properties, only the income and the equity is considered for qualifying.  

There is a new 20% pass through deduction you may qualify for that could help you, but not everyone qualifies.

You need to know what you are getting yourself into and these can be tricky.One of the reasons that LIHTC deals are attractive at certain points is that the restrictions can be stripped off through a "qualified contract" process. 

Make sure the vehicle you choose is able to qualify for lending.

I usually find pre-screening questions is helpful, and reduces you wasting your time showing the property to non-qualified tenants. 

It sounds like you are saying I have to pay capital gains, and the only way I see to avoid it is to move back in for 2 years before selling to qualify for the primary residence exemption.