I don’t mean living a simplistic lifestyle where you live as frugally as possible and you learn to live off of 3k or less a month.

A little over simplistic but you get the idea.

This is the information I got at a local REI-Lender meet in Milwaukee, I am not sure if they work all over the US, but it is worth checking out (pardon the simplistic notes):Contact: Teddy KhanKey Mortgage ServicesChicagoResidential MortgagesCash out products, no seasoning 

I just think you're making it a bit simplistic, and I disagree with some of your assumptions.

(This simplistic one will normally get around privacy issues since you don't request names).

So I still feel that the rules are not as simplistic and black-and-white as you are asserting.

I know this is SUPER, SUPER, simplistic example not accounting for HML fees and rates, holding costs, contractor fees etc., but am I missing something? 

Do we need to form an LLC or is there a way we can do this more simplistically, and I can just purchase the house as an individual with his funds?

I know this math is simplistic, but it is good practice for me and my mindset.  

It sounds simplistic but you noted that the appraisal value used comparable sales (as they all do).