Most lenders will use the lower of actual rents vs market rents regardless of section 8/non section 8.

I guess the one that makes the most sense is "Reject", but that seems weird because they might have actually passed screening.

An example of this would be mixing your personal money and LLC money in the same bank account.3.

You should reach out to @Melissa Haworth she can get the actual numbers/rents on STRs in the area to help run your comps.Each building is different, each area is different, it is important to find accurate data to make good decisions.

For me it boils down to more of a personal decision - can I afford two homes, do I want to have two homes and the stress of it, or just take my money out of one and put it in another.

No PMI and little to no money down.

@Clark Harbaugh, Given the favorable tax rulings over the last few years (in particular revolving around trusts and their equaling a beneficial interest in the underlining propery) the IRS has actually been much more lenient (or at least silent) on these issues. 

Save that down payment money you mentioned or go for a multi family at a higher price than the single but have rental income. 

If it cannot do that, it's likely to make little to no money in the first year or two.

He must have spent gobs of time and money every year maintaining the books and the structure.