You avoid the 10% early withdrawal penalty on up to $10k.

It sounds like a better option for my purposes would be to roll into a traditional account that allows loans without a penalty for early payoff, thereby avoiding tax withholding and penalties. 

Trying to avoid the headache of starting over with another lender.

I've considered simply buying properties with that cash and avoiding financing all together, but I'm afraid that will lead to a significant portion of my cash "sitting on the sidelines" more often than it's being put to use.  

There are some issues with claiming the Section 121 exclusion (for tax-free profits from the sale of a personal residence), but this can be avoided if you have a single-member LLC that is disregarded as an entity for tax purposes. 

I am actively seeking someone that can do my taxes for this year, but also who can direct me a little bit for decisions in the future so that I can make sure I am not missing out on tax benefits and avoiding tax pitfalls.

And you want to avoid student loans as long as possible. 

He's selling now because he's coming up on the "lived in it for 2 of the last 5 yrs" dead line and he wants to avoid the capital gains tax.

Just want to know what the potential dangers are and how to avoid them.

What if they have deductibles that are high to avoid large monthly payments?