A lot of our clients will do it both ways, move out and turn it into a solely investment property, or live it in for 2 years so they qualify for the primary residence exemption on the half they live in and 1031 the other half.

If you're buying as a primary residence, you don't have to bring as much down, so you can get into real estate much easier.

You need to read IRS Publication 523 for The Sale of a Residence.

I reside in Taunton which is about 1.5 hrs outside of Gardner. 

I recommend talking with a hard money lender to see what you can qualify for and be able to use those number for your holding costs.

As this little room doesn't qualify as a bedroom (it has a window, but too small for egress, though there is an exterior door only 8 feet away), is there anything stopping the tenant from putting a bed in there and letting someone sleep there? 

The issue we are having is the property doesn't "legally" cash flow enough to qualify for DSCR, and, for seller finance, they have unrealistic terms.

Investment Info:Single-family residence buy & hold investment in Paramus.

You would also have to qualify for the assumption by the current servicer.

Sarah's a qualified Accountant and has always dealt with our tax affairs, in the US and in the UK, so it makes total sense for us to take back control...