I really cannot figure out what the state here in Colorado is trying to achieve in stripping property owners of that right. 

I requested to have property vacant upon closing however the sellers tenant is refusing to leave because he lives in a non owner occupied unit. Is

The location where you invest determines all long-term income characteristics essential for achieving and maintaining financial freedom.

Another scenario would be to get an empty lot, build a multi-family and live in a unit. I

Living for free is essentially the first great achievement to the path of financial independence and you have already done that!!

If you want to live there the 12 unit is not for you.

Quote from @Chi Zhang: I've spoken to my CPA about this and he said it is extremely hard to meet the qualifications, and most investors have enough deductions that this deduction isn't worth trying to achieve.

It is surprising that the unit is only 3 years old though.

For this purchase, I would love to use the new 5% down on lending if the 2-4 multi-family unit is "owner occupied." 

It is indeed difficult to achieve good appreciation in most markets I've observed.