I do want to keep house #1 if possible.Currently my loan on house #1 is 5/1 ARM Interest Only; 3 out of 5 years completed; It has another 5-years of interest-only (rate resets every year of-course) left.

Back in the 80's when the Labour party had run the country poorly and interest rates were in double digits, people still did not default on their mortgage. 

As I said I am just trying to figure out roughly the tax situation, but this part seems like a big one to me (5 digit deduction on schedule E) so I wanted to know how it works and not just go to a CPA and have him tell me a number.

I am looking at SFR to start in a market where I can cash flow(hopefully double digits) under 150k.

I now, am looking into getting into the game.Recently got my pre-approval for $300k conventional @3.8% and armed with it i decided to start hunting for deals and found a 2 family in Stamford for $246k.

I did pretty well there.On the other side, I have equity in a rental and I'm thinking to sell it to fund my own deals, the market in Dallas has been appreciated on double digits and it is a seller's market, I can sell this one to my tenants  but the question is should I sell it or should I keep it and keep using the Hard Money Lender? 

If anything, digital collections (although prone to lawsuit) are less prone to lawsuit than paper collections.

Excellent double digit returns. 

@John Casmon I've been noticing that it's difficult to find deals that will yield a double digit IRR even on paper, unless I am willing to bet on above-average appreciation.

I am doing a portfolio loan with them so they are able to do things outside the Freddie and Fannie rules as they will own and service the loan, I am doing a 7/1 ARM for 30 years, and a 20% down payment.