I think a better way to say this is, if a rental property is a short term rental (meaning the average rental interval is seven days or less) it's not a rental.

I'm a little curious about some of your assumptions: 1) Vacancy at 3% is very low (5%-8% is more common), 2) 5% income and 0% expense growth aren't realistic - more common is to have the difference between your income and expense growth around 1%-2%, 3) Paying P&I during rehab isn't common - normally this is setup as an interest only period until the property is stabilized and then do a DSCR loan, 4) A proforma cap rate of 9.21% is very high for this type of property (this more of a cap rate for a Section 8 property).

I've worked with this lender several times before, but always on single family new construction.I'm building 2 town homes under a single roof, on a single parcel of land. 

I'll use a house hack from a member that was posted recently as an example.

Let me know when you have a few minutes to talk. 

Feel free to dm me if you want to have a further discussion. 

Were they transitioning from a smaller investment?

I would reach for a more mid-tier duplex since you'll be living there and it will generally be better long term.

A legal duplex will have everything separate.  

I have been sued multiple times by tenants and never did a thing wrong and never lost a case.