Eliminate debt, establish a budget, and save.

And you do not technically have to replace debt. 

Eliminate debt, establish a budget, and save.

You can make money there, but it's hard money, and it's not forgiving if you get it wrong.

Real estate is very forgiving.

Our only debts are a 2.875% mortgage with a balance of $124k only paying $897/month on an appraised value of $325k, daily driver car of $370/month, and use a credit card for monthly expenses, but pay the balance off with every pay check.

Lenders usually determine whether properties are lendable based on the debt service coverage ratio. 

Less risk as far as a debt note, that's true, but debt is not the only risk to be managed.

Or do they leverage debt, and use the subsidies to cover the equity needed?

If you don't have the extra cash, can you get creative with a private lender or partner stacked on bank debt?