Buying Neighbors House/Converting to Rental/ Living in MIL Suite

[Jordan Buys]

Howdy, 

Long time listener, first time poster, and hopefully future RE Investor. We've been considering purchasing a second property for some time and had a potential deal fall into our lap. 

Our neighbor is looking to sell quickly without listing his property and would give us a 10-15k discount below market value. The home is a 3/2 which could easily be converted to a 4/2. It also has an attached Mother-in-Law apartment that could either be rented or AirBnB regularly. Wanted to get your advice on how we could potentially structure this. 

We would ideally like to purchase their home as our "primary residence" on a personal loan but stay in our current home next door. Would it be legal for us to "technically live" in the attached apartment as our primary residence (send mail, bills, leave some belongings) and then rent the main house or would this be mortgage fraud? 

Without the 4th bedroom the deal doesn't make much sense...however with it I'm projecting a 1.08% Price to Rent, $589 monthly CF, 1.57 Debt Coverage Ratio, 8% Cap Rate, 17% COC, and 19% IRR. The window for rentals in our area is closing quickly. Would this be legal and advised, and do you think we should jump on it?

The economies of scale and proximity seem ideal for first foray into Real Estate. Would be very easy for maintenance, projects, monitoring, etc.