The answers to those questions should tell us how we need to treat the loan interest.If taxpayer just throws it in a bank account, the regs are pretty clear it is investment interest, which as you well know is itemized and limited to investment income.In a nutshell, we need to trace the cash.Treas Reg §1.163-8T(a)(3) Manner of allocationIn general, interest expense on a debt is allocated in the same manner as the debt to which such interest expense relates is allocated.

The prices here are less expensive then the east coast and your money can go further. 

After all expenses the cash flow is $850/month. 

I realize it typically is a lot more expensive to build new than to buy an older house, but I was wondering if anyone had experience building in the OKC area and could give suggestions on A) how much it typically costs per square foot, and B) if you know of good construction companies that you would recommend reaching out to.

Make sure that you are accounting for all expenses.... vacancy and maintenance, and are there any landlord paid utilities?

It would be very expensive if you take over the property and more than 2 units are vacant or non preforming Even after adjusting your vacancy and adding it $3k per unit, I bet you will still have a good deal.

Whenever someone sends me a deal they have analyzed with it I immediately throw it in the trash...do they still calculate CapEx as an operating expense?!...

The Structural Engineer said it would be prohibitively expensive to jack it up and level it.

One 2 Bd apt. and two houses, 5 bed's each.Financing Approach:80% Bank20% 10% down payment10% seller financing - terms to be negotiatedAnnual Financials:-5% vacancy (the market is emerging and vacancy is very low - we know this because we own a 4-unit in the same area, purchased from the same seller)-Rent roll: $55,800 - can be pushed up by $4,800 conservatively after rehabbing-Property Taxes: $4,277 -Insurance: $1,619-Maintenance / Capex: $11,160 (projected - 20% of rents)-Water / Sewer / Utilities: $6,200-Property Management: $3,600 In summary:At purchase:-$55,800 gross income-$21,903 total expensesPro-forma:-$60,600 gross income-$22,529 total expenses We want to get your thoughts on this deal.

I would suggest house hacking (buying a home with multiple units like a 3-plex) and getting the rent from the other two units to cover your own housing expenses.