In order to defer all tax you'll need to purchase at least as much replacement real estate (any type as long as it's investment real estate) as your net sale and use all of your net proceeds to do that. 

I don't want to piss off the agent but I also do not plan on discontinuing my dialog with the seller (as long as this is not illegal).  

As long as you had a good relationship with them, it's definitely something to consider!

I agree with Hai - you should also consider an FHA loan, as you can still get one for up to a four-plex (as long as you owner-occupy it for at least 1 year).

@Travis Evenson I do not see a problem here, as long as the rental income has a decent DCR and you have enough cash to cover downpayment and closing costs you should be good.

As long as you can borrow the money, I'd use it as seed money to buy more places.

You want to talk to a tax accountant about the tax implications of her selling the property.Also, what you may want to do is have her take out as much equity as she can, then do a lease option to you for as long as is allowed in your state.

This will lock in any tenant as long as they want to stay,   unless they engage in egregious (and proveable) acts of nonpayment or behavior problems.   

Some of them end up being the nice family that had one income earner who lost their job and held on for as long as they could etc but some of them are the guy who lost the job because of drug testing and then lost 5 more jobs the same way and then did the spiral into bankruptcy.

For instance, could I stay in one bedroom, and then rent out 4 extra rooms to other people (in the case that I buy a 5 bedroom house) as long as there is 150+100+100+100+100=550 square feet of floor space in all habitable rooms?