I've heard of people doing this, but you need to be rehabbing it enough to make it higher value so ideally you need to be purchasing something that needs some rehab so that you can increase the equity because otherwise you're not gonna have enough equity to pull out

I definitely need to do more analysis in terms of comparing against other rentas in the area and ideal beds and heads count. 

Like everything else... if the numbers work and all the other factors at play are good in your opinion.... go for it! 

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Debt is rarely a factor in their issue. the ultra wealthy I know  with a few exceptions have very limited debt.. to no debt. 

Look for a local credit union that can offer a cash-out refinance once the work is done, ideally with minimal seasoning.

In your situation there is actually another factor that may work in your favor.Only the proceeds allocated to the sale of the building can be used in a 1031exchange. 

If you're looking to scale and take full advantage of house hacking, look for a property on the larger end of the spectrum, ideally 4 units.

Ideally, you want something in writing, but that is probably unlikely since no one will want to stand behind a not-yet-final number.