Very much by the letter and oftentimes unrealistic. so you do have to be careful when buying for the purpose of that CO.

But I have to imagine, buying someone/giving someone a house - there's got to a very smart way to play it for tax purposes. 

There are several specific nuances to the foreign seller completing a 1031 but that is another option that would be available to you.If you in any way treat the property as your primary residence then for federal tax purposes you will not be eligible to 1031 it and you will have to adhere to the clock of sec 121 which requires you to live in the property for 2 out of the previous 5 year period.  

As I wrote above, I told the broker it was for investment purposes.

What is their purpose again, to act like realtors for cash transactions?

Anther benefit to having a continual base of tenants now is that you can count the rental income for the purpose of future lending once you have 2 years of rental income.  

This serves two purposes.  1.  

@Andy KrzanowskyIt seems like you're leaning towards the lower down payment option.Yes, you can write-off the PMI for tax purposes so this will save you a chunk of money.  

@darrensager I'm curious to know what most property owners do when it comes to protecting yourself and also tax purposes.  

I think it is best to have it as a separate transaction for transparency purposes.