this is curious thought process... how does the city get the properties.. is there a city ad valorum tax as well as a county one ? 

I would then lend the money out to fix and flippers at 15 to 20% APR   IE HML  and make the 15% on the 1 mil  that's 150 a year... then make the delta between the 7% bank rate and 15% low side  for 8% spread on 5 million which is 400k a year... there by grossing before tax  a tidy 650K a year...

If we were to sell we would qualify for avoiding capital gains tax as we have only been renting out the property for a year and I was living there prior to getting married.  

You can buy a replacement property with your 1031 exchange and defer all tax as long as the investment portion was worth at least as much as you sell. 

All your profit from the sale of a flip is ordinary business (active) income (reported on Schedule C if you are not using a business entity), and further subject to payroll taxes in addition to your ordinary income tax. As

If it's vacant, then I would try to sell it, if you can come out ahead.If you can do something about the property tax, as Chris suggested, then that would also take a chunk down.

This allows me to have 1 tax return (simple) with the Holding Company overall tax a congregation of the subsidiaries P/L.

And that 10k tax? As

Also, remember that flipping profit is taxed as earned income subject to self-employment tax as well.Along with actively buying properties, as mentioned there are all those "creative" deals you can try --- it just depends on what sort of leads that you get and what sort of risk will you take on.Certainly, there are other investments such as private lending (secured by real property) doing 12% or better... 

I see liability and I see something that could cause confusion and a drain on your time and energy an occasional perhaps bad review and a time-waster and having to track sales and possibly tax a lot of other nits.