It seems ridiculous, but that's the world we live in now.

Is the basement legally considered living space?

I have lived in Truckee for over 23 years and understand the pain you can go through dealing with a local government where the answer you received on Monday is different than the answer you receive on Tues, Wed, Thur & maybe even Friday if anyone is working.

if you buy it yourself and turn it into a live in flip and absolutely crush it, great! 

Or paying off my debt, while I provide them with a nice house to live in instead of an apartment. 

I’ve been starting my research by seeing what is being bought and what is on the market, and live nearby so would like to check out neighborhoods, but am wondering which neighborhoods I should invest in?

What adds complexity to our plan, is that we live in Minnesota.

Quote from @Kornelius Friske: We have a STR located in peoria AZ. it's 6 beds (garage conversion) and about 3900 sq ft in total. our energy bill last month was $450 and has been hovering in the $350-$450 range since we went live in august.

I went owner occupied either conventional or FHA.  3-5% down at the time you only had to live there 1 year and then you can move out or move on. 

You will be living in someone else's house.