Its a high risk business in any event and all the more so for a foreigner without very deep pockets, local knowledge and experience in expensive and time consuming foreclosure procedures.In short - my advice would be to stay with the current partner (or look for someone else acceptable to buy him out), continue enjoying the $500 current cash flow and look for alternative and diversified places to put your other hard earned capital.

That is why they do not qualify for 1031 treatment. 

., Since the property it currently your primary residence it is not being used for investment so not eligible for 1031 treatment. 

Alternatively, if the appraisal comes back low and you still want to purchase, you would just have to make up the difference between what the bank will finance and the offer price in cash.

@Brandon KompOf course, if you take a distribution from your retirement account you will have to pay the taxes and (likely) penalties.There are possible alternatives which would allow to you use these funds without paying taxes or penalties.

I know any expense before I buy my first rental can be treated as start up cost but I would like to get some input on tax treatment of expenses incurred  between two rentals.

Ask if there has been a recent bedbug infestation (treatments don't always work).

I host a group called Black Diamond that alternates meetings between Burlington and Worcester. 

Is a lawyer the only person who can draft a option contract or is there other alternatives to get a hold of one?

On investment properties we cannot use that 203K loan referrenced above but Fannie Mae does have a renovation loan, Homestyle, as an alternative.