But it sounds like they are just positioning themselves in the middle of your 'deal gone bad' to make some money for themselves.  

In many cases, it weakens the lender's position as they did not underwrite the buyer and an owner-occupant tends to pay better than non-owner-occupants.

I wish there was more positive feedback from investors. :( 

If they are CF positive then they will not cohnt against your DTI but will improve it...that's standard conventional guidelines barring a few exceptions.

•Likely, the new property wouldn’t be cashflow positive due to the market conditions.2.Upgrade to a Bigger Property and Sell•Sell our current home and move into a larger house to better meet our family’s needs.• Use some equity from the sale to make this transition smoother.I’m torn between maintaining our current home as an asset and buying  a new smaller house to use as a rental after we move back in versus simplifying and focusing on a single upgraded property Considering factors like market trends, potential equity growth, and quality of life, which path do you think would be most beneficial?

As others have pointed out, you are actually in a great position!

The local/ state etc (governing body) may not just "give you" one.

If you use the Heloc option and decide to rent it out, don't forget that property (or you) will have to cover both your primary and secondary position notes.I don't personally see Marin being a great mid term market.

The issue with section 179 expense is that you normally have to operate at positive income.Under most circumstances, bonus depreciation is better since you can take bonus depreciation even if you operate at negative income. 

that we’ve learned in our 24 years, managing almost 700 doors across the Metro Detroit area, including almost 100 S8 leases:Class A Properties:Cashflow vs Appreciation: Typically, 3-5 years for positive cashflow, but you get highest relative rent & value appreciation.Vacancy Est: Historically 10%, 5% the more recent norm.Tenant Pool: Majority will have FICO scores of 680+ (roughly 5% probability of default), zero evictions in last 7 years.Class B Properties:Cashflow vs Appreciation: Typically, decent amount of relative rent & value appreciation.Vacancy Est: Historically 10%, 5% should be applied only if proper research done to support.Tenant Pool: Majority will have FICO scores of 620-680 (around 10% probability of default), some blemishes, but should have no evictions in last 5 yearsClass C Properties:Cashflow vs Appreciation: Typically, high cashflow and at the lower end of relative rent & value appreciation.