The latter also encourages them to leave the place in good condition and to make it available for showings (with 24 hours' notice and grouping showings-never leave perspective tenants alone inside if the house is occupied).

Below are some general notes on DSCR loans:* usually used for single family or 2-8 multi family unit properties (fits your scenario)* must be for investment, non owner occupied (if looking for a product for alternative qualifying solutions for owner occupied there are other products)* can close in a personal name or LLC* usually 80% LTV for a purchase (20% down payment) & usually 75-80% LTV for cash out refis* prepayment penalties vary and are optional, but the higher the prepayment penalty, the lower the rate / options typical range from no prepay all the way up to 5 year prepay and structures vary for how those penalties work (3 year is my most popular by far)* appraisal most likely required and paid out of pocket during transaction* can be used for long term, mid term, or short term rental properties * generally 1%+ is the desired DSCR ratio but you get better rates if the ratio is higher (usually rate breaks kick in at 1.15%+ or 1.25%+) and you can still get the loan done if ratio is lower than 1% but the rate will reflect that (DM me if you wand help learning how to calculate the ratio)* the average time to close is 21-30 days* fees vary lender to lender and product to product, but $1595 underwriting plus title fees is pretty standard* 700+ credit is preferred to get max LTV, but plenty of options if credit falls below that* a typical loan minimum is $75k (have limited options for $50k+) and typical loan maximum is $3-4m (have limited options for $4m+)* 3 months reserves usually required, having 6+ months will usually result in better loan terms, 0 reserves can still get the job done if you go with a program that allows you to use the cash flow as reserves* 30 year fixed, IO, and ARMS available

My initial infant level of knowledge would tell me it's a combination of being poorly managed (I calculated they're spending nearly 65% on expenses to only have $305K NOI on 95% occupancy at $875/m, if that's even the average rent/unit currently occupied). 

I hope you did this before they occupied.

Since you owner-occupied it, doing 5% down on your conventional would've both lowered your cost of entry (saving cash for repairs), and juiced your CoC returns even more.

I would advise sitting down and putting the costs in front of you, are your lease lengths 15-24 months at a time, are your tenants low risk and likely to occupy or break lease, things to consider :)

I'm a little torn get a gutted house that makes no income or find another 50K house with an occupied tenant to get more income?

If there is a house with a detached ADU, if the main house was built prior to 1978, it is subject to rent control.A buyer can attempt the Ellis Act, which could take months (owner occupied loans generally require the borrower to move in within 60 days) and cost $20,000+.

I'm a little torn get a gutted house that makes no income or find another 50K house with an occupied tenant to get more income?

The seller may not be Interested in interest only loan (especially if owner occupied).