By the way, I read that book mentioned by Joshua, and like every book that talks about construction cost depicts a cost that is localized. 

As most have mentioned talking to a loan officer is going to get you the answers you are looking for. 

Different posts here mention the following, quite different, tactics:- bid 85% of reduced price (which means Net to HUD will be under 80%)- bid so that Net to HUD is 80%- 88% Net to HUD rule still applies after 1st reductionCould anyone share actual experience with successful bidding after 1st reduction?

Thanks for the feedback an it’s funny you both mention getting a new accountant as that has been on my mind from some other prior dealings....advice noted

You mentioned that you might want to Airbnb the addition?

Like you mentioned, its hard right now to find something in a "A" neighborhood like West Loop that will cash flow after all your costs considered (PITI).   

As Brian already mentioned...you're always at risk for the due on sale clause if it's written into your mortgage.

Can I ask if the terms I mentioned are comparable to what you have?

I believe this would all be taxed at ordinary income rates since it is a distribution from our IRA (plus 10%) penalty if you have not reached retirement age (looks like retirement age since you mention RMD).   

If you sell for $325k and then buy a replacement prop for just $200k (as you mention), you've basically taken that other $125k and paid off your loan, leaving you debt-free.