If not, pay off the mortgage all at once.This will help keep you from rationalizing a bad rental purchase just because you earmarked the funds for it. 

With real estate, you have to make sure each property is functioning at full capacity or you’ll be losing money.You can analyze properties and be pretty sure (as long as you don't rationalize bad deals into good ones) what your numbers will be. 

I've had HUD forms filled out billing me for pro-rations that were the seller's responsibility, agents who have lost track of contingency removal dates, ... the list goes on and on.

If so, the income on your tax returns will be positive so the whole rational of trying to avoid the income is moot. 

Then you will be informed enough to make a rational offer on the property. 

So, let’s RATIONALLY take a look at the three possible scenarios.1.

Do you think my thought is rational or am I too pestimistic about housing market? 

There is no rational debate I could ever have with you, because you ignore everything negative relative to crypto. 

I just do not see any rational/benign reason for them charging so much in deposit up front considering that the house has not sold for 6+ months and I will be able to close relatively fast. 

It's rational to be scared of success when you are so young and don't know the steps to take to get there.