I suggest listening to the BP podcasts and get a feel for what area would best fit your goals. 

Once you have rehabbed it (cost effectively) and rented it out for say six months, a NEW appraisal should come in at least 40% more than you owe on it, which means that your Lender should approve a cash-out of 20-25% of it's new value ie. enough for a DEPOSIT on your next property purchase (and so on)...Others may have a clearer or more correct explanation.

There' all wood and will outlast vinyl - - just look at those Victorians with originals.Retro-fit windows are usually vinyl, easily installed and need no inspection. 

Not a bad person, the shoe just doesn't fit.

My question is; How does living in the flip effect the tax end of this?

I know that will effect us negatively...but still would like to hear opinions since she has not paid mortgage since 07 and they have not been able to foreclose on her.

So I could also fit another flip into my budget this year.

There are many people on this site and in the Lexington that fit your description.

Educate her on the options and pro/cons of each and let her decide which best fits her needs/desires.

Interesting, but we need our view to be know directly to the SEC it they are to have any effect.