As soon as you get the leases signed and proof of security deposit and first months rent deposited into your account your can use it.The question should be, do I even need to get the units leased out to qualify ?

You can buy a luxury home in Florida for example for $1M to $1.5M bigger than a $2.5M home in CA.They make Hurricane Proof homes now so its not that bad if you plan a ahead.  

We are wondering how to go about showing proof of funds if the deal ends up being an on-market deal.Any advice would be helpful.

1) I always use zillow to list new properties and use there platform to accept zillow applications2) Doorloop for management that includes accounting, repository for documents like leases, collect rents, tenant communications3) Received lease agreement from a lawyer

If you catch these at the pre-foreclosure stage as slow pays or initially in default all the better as the bank has less in collection expense.You can still work out a discount but even buying at the payoff it can be profitable depending on the property value.You can practically force a lender to sell as it can fully indemnify them as a full payoff as demanded, continuing with a foreclosure becomes a rather vengeful act by the bank to punish a borrower, they don't want to go there.

That fact was posted earlier, giving the recording number as proof.

One look at my lengthy elaborate educational answers makes it obvious my priority here is to give away value for free.2) I gave you COUNTLESS proof of my SEO leads, Rankings, and conversions.

Of course just being sued isn't proof of anything.

I figure the upside to the rental scenario is, of course, investing in multiple properties, while a downside would be having to most likely get a conventional loan on the second house with 20+% down and proof of sufficient enough financial reserves to handle two mortgages. 

If so, then I would return the portion of the security deposit to the one leaving and collect that same amount from the one staying.