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.

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

The way the guidelines are written is that you have to intend to occupy the property as your primary residence when obtaining the loan, and this is generally demonstrated when you live in the property for at least one year.

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

I'm unsure what the right path is, but I've been reading about investing in owner-occupied, multi-family properties.

Typically speaking 20% down (80% LTV) is the bare minimum that commercial lending requires.  10% down is unheard of unless you are getting a great deal and negotiate some small seller financing in second position or getting an SBA Loan for acquisition where your business will occupy over 51% of. 

Lenders will allow parents to be a non-occupying co-borrower on a home your college student plans to live in.

The down payment on owner occupied properties can be as little as 3% on owner occupied properties.

This is an essential tool for anyone buying a tenant-occupied property.