At this point in time are they paying you rent?

Also, if you are going to keep any of the security deposit for any reason, make sure you itemize and send the list of deductions in time allotted per your area landlord/tenant laws to avoid additional issues.    

Not an attorney, blah, blah, blah.Fair Housing does not apply to roommate situations because the space is so "personal and intimate" that it would be a violation of your right to choose whom you associate with. 

If I can’t find another deal in time I have friends to stay with so I am not concerned about not having a place to stay.

You post the specifics of your business plan (or for REI, numbers on your deal, exit strategy, etc) and then wait around hoping enough people commit the funds in time for you to actually close.

If there are truly are no comps even when they look wider and farther back in time, then the 'party line' answer is that there's no evidence of any demand for this type of product in the market, making it bad collateral for a secured loan. 

As a beginner, that will be difficult as they likely know more than you at this point in time.

In time, you should be able to pull some equity out of your duplex to fund a down payment on your next acquisition.

Similarly, you can achieve RE success in most markets and having intimate knowledge of that market increases your odds of success as well as provides mechanisms to decrease risk. 

Anyway, I think we got out just in time but I'm not big on city living.