I'd wager they have told you they are paying cash so you can't double check, they are not. 

There are plenty of people who have been able to start a career with nothing more than drive and a dream so I'll let them post how they did it however I'd wager that they are the minority and the hard situation is this is a cash intensive business. 

Only 2 options if you are a W2 wager earner. 1.

I'd wager that you might be able to get good returns out of there, but on the other hand, I'd be careful of any rent control laws that might kill your return.

But more bedrooms give a lot more flexibility.I don't know what the market is, but I'd wager a 5/2 is almost always going to have more value than a 4/3.But again, that's just my opinion.

Just the costs of setting up a room, bringing the plumbing, gas, electric (I believe commercial machines run on 250 volts, which likely isn't wired in yet), having someone on-call to fix them whenever they break, might require too much capital.But:I'd wager I'm not telling you anything you didn't already know!

While using tax benefits of the loss, yes, I would still save some money compared to renting / buying, but that seems like a dangerous wager to me given that the depreciation taxes will be recouped by the feds if I decide to sell and THAT could end up costing me way more than I ever actually made on the property.

When all is said and done I'd wager that employing this strategy would net even less than just buying a multi-unit to start with. 

They seem to be able to make their desired profit.They are wagering on market/rent appreciation.They see a hard to identify value add. 

I think those closing costs--at least in a situation like this--is a fool's wager.