The issue with section 179 expense is that you normally have to operate at positive income.Under most circumstances, bonus depreciation is better since you can take bonus depreciation even if you operate at negative income. 

This is not “student housing” in the traditional sense - even the vacancy risk doesn’t exist as it’s a 12 month lease / they work over the summer there, etc.  

Right now, even if you have no reserve money saved, if a bad situation came up you could tap that 401k to cover the situation. 3.

However, even though they both have jobs now, they still do not pay the weekly rent that they promised to pay.

I've included an example below to help illustrate this.So different lenders have different rates (which do vary even for DSCR loans) but these are factors they all consider.See example below:DSCR < 1Principal + Interest = $1,700Taxes = $350, Insurance = $100, Association Dues = $50Total PITIA = $2200Rent = $2000DSCR = Rent/PITIA = 2000/2200 = 0.91Since the DSCR is 0.91, we know the expenses are greater than the income of the property.DSCR >1Principal + Interest = $1,500Taxes = $250, Insurance = $100, Association Dues = $25Total PITIA = $1875 Rent = $2300DSCR = Rent/PITIA = 2300/1875 = 1.23If a purchase, you also generally need reserves / savings to show you have 3-6 month payments of PITIA (principal / interest (mortgage payment), property taxes and insurance and HOA (if applicable).

If you have other money to grow your portfolio even with $107K left in the property then  hold the property. 

But if I put the money into buying a house, with the leverage of a mortgage loan, I can still earn about 11% annually on my investment on the appreciation, even though there is no cash received for the rent.

I like this train of thought and think you should aim for option 3: conventional loan + lower downpayment (perhaps even lower than 10%).

So, often times even if 1 or 2 of the units in the building are not generating any rent, the remaining rents are still enough to pay for all of your property’s expenses and you don’t have to come out of pocket to cover them.

Someone could have income from a pension, disability, investments, or even Section 8 without being employed.I'm not taking the time to study your market, but the ad looks pretty good.