If your rental property is occupied, there are different rules that apply for selling to an investor versus selling to a buyer who intends to occupy the property.

I own a unique mobile home park in South Carolina that's relatively small (5 acres) comprised of 12 lots (I own 8 of the homes while the other 4 are owner-occupied and charged lot rent) along with a house (3 units). 

Their previous lease includes a portion of storage in the basement with laundry access(also in basement).Current set up: tenant occupies floor #2 with separate access to the basement for their laundry and storage.Future plan: reno basement and remove storage/laundry access for tenant.

If you're going to owner occupy and and want to benefit from some rental income then I'd go for it, but if you're looking for some combination of appreciation and cash flow there are better places to put your cash.

So he did a non allowable assumption to get around non owner occupied rules and it bit him in the ***.Karma....

So he wants all the upside (fully occupied and cash flowing) without any of the work (rehab and lease-up).Like @Tyler Watts said, the math wont work.

Fully occupied, the property grosses $5,570/month with $4690 net profit after expenses.

If you're occupying the vacant unit, what makes you think you can evict either tenant from additional units?

The lender required that the property be tenant occupied/cash flowing.

Whether a cashout refi or purchase, though, youre going to have to go through the same underwrite as this is an owner occupied residence.