Also, you may want to consider an umbrella policy.I've heard the same advice from various attorney's which in my mind can only be rationalized for ultra-high-net worth individuals.

It's just a way of trying to rationalize the "white lie" because it's hard to factually prove what my intent was when I was filling out the mortgage application. 

In my situation my seller wants me to take the first half the month unpaid rent out of my pro-ration, basically assuming that I will collect it.

You're rationalizing (rationalization is the most expensive word in a REI vocabulary...NEVER USE IT) a bad deal into a good one because it's your first? 

We paid cash for 2 properties now and when it comes time to refi out the banks are saying our debt ration is not good.

I wouldn't rush to pay off anything under 4%, as this is almost free money.if you have high monthly loan payments, relative to your monthly salary you may have trouble finding financing. if your loan payments are lower it may have no effect.remember, this is all a  numbers game. if someone says you always have to pay loans off, that is because they are risk averse and let fear talk. rational investors make decisions based on numbers and facts, not fear and emotion.

Obviously the rational thing here is - move on, and do something a bit different next time.You see, Brian, the first and most important step in any success is to take responsibility for everything.

Your DSCR (debt coverage ration is negative as well). 

-Rentals will become more prevalent, but that means more homes will be owner by investors who, on the whole, tend to act more rational than an owner occupant and will invest rather than consume.

Think about it rationally-- that $30K down payment will pay for itself in less than 3 years in income, and then that additional $12K rent can go towards student loans.