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. 

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. 

I also liked that they are US based as I had issues with my bank with the Finland based Hostaway.Finally, I highly recommend PriceLabs.

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

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. 

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

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

Pros/Cons, contacts even maybe, for instance how do you even acquire a loan like this, or is it the same as hard money dealings.

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.  

However, still one of the best plays out there.