It's very common for small business owners to understate their expenses and overstate their income.The overstatement usually is in the form of "We don't run everything through the cash register", especially in a cash business. 

While it may be legal under state law, it is not under federal law, and the federal government can seize your property under civil forfeiture laws.  

I'm not sure I understated the Washington state guidelines and I have a motivated seller in a foreclosure position wanting help.

To that, I'd say if you are going to do it, do it right from the start because if you end up exceeding the exception, the first deal could violate the regs because it is a rolling 12-month look-back.Loan Servicing: There are annual reporting requirements under state and federal regs. 

If the borrower defaults, under state/fed regs, it can take 9-12 months to get the property titled back in your name, so you need reserves to make 12 months' of payments without income while you foreclose and evict the buyers.Fourth: legal.

What I *dont* understated is if a 721 Exchange can be/is ever used on a 'tiny scale' (relative to REITS) of just 1 to maybe a few properties to add more flexibility going into the newly aquired property(s)?

Title does matter as the deeds could be titled in ways that under state law would not need court approval or intervention.

It is not uncommon to see vacancy and maintenance omitted from their projections or are far understated.

And once again, this figure understates the return because it does not take into account the sheltering of income against state and local taxes which might occur.

Falls under state jurisdiction not county.