And must be pretty significant unreported income if it would have caused $45k in state tax liability.You advised your client to wait past the expiration of state statute.

This amount provides a reasonable safeguard against potential claims if something goes wrong, like an accident or damage to the property caused by the tenant. 

Is this a concern for other users?

And that something caused you to change that intent.But a 1031 exchange would allow you to sell this property and buy any other type of investment property anywhere in the US. 

If it is someone you know you can give them a straight return as if its a loan - can provide a lower interest rate to provide upside - it really depends on the lender and what are they concerned with and what is their risk profile. 

I have a few commercial bank contacts, but concerned they may just cut me out of the deal.

My biggest concern is the basement.

Now most of the time we don't see househackers/investors use in-house or portfolio loans from banks because sometimes they have more restrictive guidelines and higher fees for holding it which might cause the numbers not to work or for the deal not to go through entirely. 

While replacing the toilet, a burst pipe caused Cat 3 water damage that rendered large part of downstairs kitchen and upstairs bathroom unavailable and cordoned off for repairs .

What are your concerns?