We're currently renting downtown and looking to get started as first-time home buyers in an owner-occupied duplex situation to start our path in rei. 

Option 2 is high risk, as financing may be tough on your situation.

When is it a smart situation to get one?

Your situation is very different from most. 

The place where you can add value with no money is a situation like: you find project A, it is a 120k purchase and it should need 80k rehab but you can get rehab done for 65k cause you can do some of the work and you know how to save on materials and you can manage the rehab. 

Nothing illegal about doing that, but if caught, the lender may call the loan due and if you don't correct the situation or pay the loan off, they willstart mortgage foreclosure.3) You could also go the HELOC route to tap the equity in the home, but the 12-month owner-occupancy will also apply AND the interest rate on the HELOC will fluctuate with the Fed Fund Rate.4) You could do a cashout refi as an investment property, but that will be at an interest rate 0.5-1% higher than owner-occupied rate.Suggest you meet with 2-3 lenders to explore your options about the above.Once you have access to funds, recommend you buy a 2-4 unit with 20-25% down. - You can buy owner-occupied, live in one unit, and fix up and rent the other unit(s).- If you're handy, recommend buying a property in the worst condition you can tolerate.

Though many investors bend the rules and possibly don't get caught, you have the financial situation to do it correctly.

Most will work hard when they are doing the capital call (a few of my deals did that) but some actually called to discuss the situation.

We give users the ability to edit a post for 10 minutes after posting for those situations where you say something that you realize upon review needs a tweak.

Perhaps check with a local attorney before proceeding.I realise I left some stuff out in the beginning, but the whole situation in general is just pretty wild.