More importantly, you lose your cap gains exemption from it being your primary residence.

Check the laws in your state.Unless it's already disallowed by law in your state, as a wholesaler, you gain equitable interest by having an effective (signed by both buyer and seller) sales contract with EMD attached.  

You could also sell property #1 within the next 4-5 years and avoid paying capital gains= more money to invest with. 

Also - while the numbers pencil out- I would be very careful during the inspection period to look out for any potential headaches - at $115/ mo cash flow - that gives you $1,380 a year - not bad to put in your pocket - but one A/C unit replacement or a new appliances could wipe out all of your gains.   

I'm a beginning investor and I'm always interested in gaining knowledge and experience from other investors.

@Leslie CummingsIt is important to note that when you invest a self-directed IRA into real estate the IRA owner has to return all the gains back to the IRA and then take the distribution from the IRA if necessary.

If you ever gain a partner, you can then use that same EIN to file your partnership taxes.Since it's cheap and easy, get the LLC setup out of the way from the start, and you'll avoid all the questions you asked down the road.Oh, since DeuterInvestments.com is still available, and you've mentioned it publicly, I recommend purchasing it asap before some squatter grabs it.  

Is there any reason (other than her personal gain) that her recommended lender could give me an advantage in closing a deal in this competitive market? 

And then maybe in 5 or 6 years, sell that house and take the equity (if its a good deal, it better have some decent equity) and buy something with that gain thats closer to you later on.The key is that you're banking that equity for now......

Splitting the building into a duplex of sorts may gross more money, but the sheer expense of splitting the utilities would wash any potential gain for many years to come, IE: 2 water sources/meters, rewiring to 2 electrical boxes, 2 gas services, etc.