There is a test called HOWEY test (you can google it).Basically if the asset is an "investment of money in a common enterprise, with a reasonable expectation of profits to be derived from the efforts of others" it is considered a security.  

Only problem is with a short term my monthly mortgage payment will be 2K, and will cut deep into my cashflow during that time.With a little work I can get my COC to 3.1% per month for that 12 years.Appreciation is about average in this area and I expect to get about 4% annually maybe 5%.

This is typical in CA and tenants expect both. 

I'm expecting a $199k sale price.

What should I expect?

I've heard horror stories from many friends who have purchased new homes and timing takes 2x longer than expected and things kept breaking.

Would you rather invest in duplex in CA that breaks even or invest in RE syndication for 2 years that offers you expected 18% annually Example: Duplex in CA costs around $600k, down payment $120k, rent = mortgage payment+real estate tax + insurance (if interest drops by 1%, then expected cash flow could be $200-$300 per month) RE syndication is offering 18%, in 2 years, I can expect to make $43,200 without lifting a finger..The numbers are favoring more towards RE syndication, in the past I have only done rentals never invested in RE syndication.

As far as your rental that you currently own, I would change your expectations a little bit, 80% cash outs are hard to come by these days and the rates on the few products available are really high.

The house appraised for a little more than what I expected.

One news article that I read stated that they expect not everyone who owns a STR applied for the license and will be operating their STR illegally.