Buyers are obtained from listings that they searched on line needing a realtor to show and represent.

They are depreciating assets that often deteriorate quickly, depending on the tenants you get....meaning high maintenance and cap X costs.

Have you accounted for the holding costs for the time that you will not be collecting rent while pulling permits and obtaining all other requirements to build the duplex, and during construction. 

They move into absolutely passive "mail box money" mode free of any asset management. 

@Joel SchanbacherThis appears to be a tricky question because this doesn't happen to often.I would do the following if I was working on it.I would report one activity on Schedule E for the property that you have listed.Report the income/expense items ONLY when the property was listed as a rental property.In regards to depreciation - I would list the asset during the year that it was a rental property and then I would "retire it".

These can be great assets if you have a sizable portfolio and are looking for a combination of high yield and capital preservation.Unlike value-add plays, there is little, if any, capital appreciation potential.

Debt service is higher (with both) which makes it more challenging to make the mortgage and with zero down you have very little incentive (without a full-recourse lone and assets) not to walk away.

I know there are low value asset notes that are pretty cheap to down right cheap.. but in general for anyone to do anything in notes you need a few hundred grand in cash to start.Also with NPN  that's a ton of work.. and there is far more risk than what is talked about or glossed over in most HOW to seminars..

For example, if you are going into LA thinking of buying a cash flowing asset, I think that would be a little too far gone right now (not to say that it is not possible), and if you are looking for cash flow, are you wanting to purchase in an area that you can see, touch and drive the property when you want, or would you want to try long distance investing?  

I'm on the other end I guess, having paid off more commercial loans than  most obtain.