The only way this would cash flow much is if I rented by the room I could rent it for about $750 per room if I added the 6th bedroom in the basement.

Renting added income to retire.

That's sounds great, something worth trying.

The home needs pretty major renovations, but in my opinion would be worth it *if* the seller is willing to come down significantly on their asking price.

Its worth looking into. 

For various reasons, we are partnering with the previous owner again and adding him as a partial-owner of the LLC and therefore the property. 

Most get bid up too close to full retail to be worth the risk but every week I see one or two properties go at a bargain. 

A good bookkeeper and CPA can be worth the investment as you scale.

In my case the property is old, bought in the 1980's and was a primary residence for many years,(until recently), there would be a significant amount of money spent on capital improvements over those years that could be added to the 250K exclusion + basis that could be deducted in a typical residential sale.Therefore is that extra capital improvement deduction lost in the 1031 transaction ?

I'm not sure the specifics of that market but my initial gut reaction would be that 90+ day stays may be a bit too limiting to make an MTR worth it. 90 days could work well with the average 13 weeks for travel nurse contracts but may limit your digital nomads, business traveler, etc bookings.