Quote from @Neil Warren: Hard money loans are at higher-interest rates and for shorter terms, meaning you will pay them back quickly, usually in 12 months or less.You should not borrow 100% of the purchase price.

VA loan!

@Martin Kim many of our clients invest in private funds that loan to fix and flippers as an example. 

My questions is how does section 121 apply in our situation(married couple)? 

He mentioned it won’t work for an extended period of time due to family situation, but if he’s only a few months short I’m sure that’ll be worth the hassle to capture the full exclusion.

Depending on your situation, you could do a conventional cash-out refinance on the rental.   

It costs so much to sell a property and buy another one, and is such a hassle, that if I were in this situation I'd strongly consider just paying the special assessment and keeping a property that's otherwise great.

And I’ve taken out five 401k loans up to 50k to buy properties.

Investors in your position can perform a fast rehab and in as little as 90 days refinance out of the interest only fix and flip loan and into a DSCR loan, 30 yr fixed product in the 7-8% range - cash out is available up to 75% of the appraised value at the 90 day mark.  

I am a regular lender doing FHA, VA and Conv, but I also loan my own money privately, and pool money from other investors when I don't want to loan my own money.