Been listening to the podcast for a few months (it's like a highly addictive, dangerous drug -- that gives you all the energy and confidence in the world!)  

One lady has sold me several properties with this exact strategy because her adult daughter has had a history of drug problems throughout her life.

The answer to that question will then determine treatment.

But the debt doesn't get the same preferential treatment as the capital gains. 

If holding for more than 12 months, you get long-term capital gains treatment.

A couple REAs advised me not to buy in Fresno given the lack of quality tenants (issues like rent not paid , having to evict frequently, plus more dire issues like drugs).

The numbers on your paper don't factor in the drug dealing tenant that causes DEA to knock down the front door and condemn your rental leading to considerable repairs and 100% vacancy for months. 

Approx $40k/yr in profits (see below)B) The parents take out a HELOC on the house, take maybe 50-75% LTV in equity out of the house( $600-750k), and use that money as a 25-30% downpayment on some kind of investment property, maybe a $2-3million convenience store / drug store property or a multi family apartment building.

If the taxpayer travels on business in the United States and while at the business destination extends his stay for a vacation, makes a nonbusiness side trip, or has other nonbusiness activities, the proper treatment of the taxpayer's travel expenses depends on how much of the trip was business related.

Using an LP, capital gains treatment are preserved.