Refinance at the start of Year 2; $185k ARV * .7 = $129,500 - $50k balloon = $79,500 + $12,744 [cash flow from rent with new mortgage] = $92,244 cash flow Year 2Sell in Year 5; less the balance due on the amortization schedule $121,909 = $63,091 cash flow Year 5The present value is now $135k which means that if I put in $140k at the start ($80k purchase price + $60k rehab costs) I overpaid by $5k.I realize there are a lot of limitations to this, for starters I didn't increase the rent at all and I assumed no appreciation beyond the ARV.

For my portfolio, we always do an increase of 2-5% to keep up with the increase in property taxes (2% on average year over year) and the market increase (somewhere between 5-10% in my area).

Depreciation qualifies as a business deduction.You do increase the chance of an audit with an amended return.

(TENENTS ARE IN ONE YEAR LEASE TO EXPIRE 1-31-19).IF I PAY OFF THIS LOAN NOW, CASH FLOW WILL INCREASE TO $897 A MONTH.I DO NOT WANT TO SELL HOUSE.HOUSE # 2BOUGHT IN 2014, PAID 220KVALUE NOW IN 2018, VALUE IS ABOUT 335-345KBALANCE ON LOAN IS $151KLOAN RATE IS 4.375, 30YEAR FIXED RATE SINCE TIME OF PURCHASE IN 2014.AT THIS MOMENT, CASH FLOW IS $200 A MONTHTENENTS ARE MONTH TO MONTH, HAVE BEEN THERE FOR 15MONTHS,  I DO NOT WANT TO SELL THIS HOUSE.  

Maybe increase your marketing budget, change your content or try a different strategy all together.Unfortunately marketing effectiveness changes rather quickly nowadays.

I love the idea of getting an FHA, 203K loan and immediately fixing up as much as I can right away to immediately increase rental income. 

John, if you don't mind giving a few more moments of your time, with the increased expenditures, how would you adjust the offer to the owner?

I would not have him pay for it, just increase the rent.

Look for areas with increased employment and population where vacancy rates are dropping.

Right now you should work on increasing your savings for when you graduate and get a full time job you are ready to jump.