Although I agree with @Nathan Gesner in part, I think he is off base in categorizing a relationship based approach to landlording as "amateur".

Btw, I see you’re Scottsdale based - that will be our 2025 work location! 

I am not sure what tools you are using for your cash flow projections but it's possible to have a property that does not cash flow year 1 but will in year 2 or 3 and so on based on average historical appreciation in Austin TX. 

As already mentioned, he wouldn't be able to use rent from roommates to help qualify but based on the numbers you shared there should be a VA option available considering how much flexibility there is. 

I never go off of a flat percentage on anything, I analyze the costs to get to a specific return I target and analyze the risk that is involved. 70% may be an initial metric to see if it is even worth pursuing, but every deal should be evaluated independently based on costs, time and risk involved.

Each option has different implications, so choose based on your financial goals.

Mostly people with minimal RE experience are adding a single ADU and they often make that choice based on cash flow without taking into account the negative equity position.  

To give you something as a reference based on your budget (30-40% down with $1.8M), the general cap rates you will see in the Bay Area are roughly 3-5% https://www.loopnet.com/Listing/1047-Rich-Ave-Mountain-View-...https://www.loopnet.com/Listing/1180-Saranap-Ave-Walnut-Cree...You will find higher cap rates and more 20+ units buildings in SF, Oakland, and Richmond, but keep in mind of their stringent tenant laws. 

* Do you provide move in and move out reports * How many pictures do you take of the property prior to tenant moves in and after the tenant moves out* Do you get weekly reports when the property is vacant what prospective tenants are saying about your home* Do you provide monthly newsletters to your tenants* Do you hold investor education classes to help me become a better investor* Do you have single point portfolio based management services?

When you say "open rate" mortgage, we would say "variable rate" and the rate would reset periodically based on some standard index.