Hey jeremy, sometimes the best options may not be local I recommend asking some qualified investment focused brokers 

You will then have a few options with that rent money....you can put it into principal or you can start saving it to purchase yet another property.

Real estate investors have a variety of financing options available to them, depending on their financial situation, investment strategy, and the type of property they're interested in.

., seller financing, lease options, etc.)?

Certain suburbs don't have many options for multifamily, so you might have to open your search to other locations.

I would probably have to return the down payment and option money to the end buyer, and he is probably going to sue me.

If not, do I have any other options at 20% down? 

This is the 2 units + 2 ADUs scenario.I am worried Scenario A might push future financing option into commercial real estate only, which will limit my cashout refi options and the future buyer pool.From a lending perspective, since a "Land Use Restriction" is required to be recorded on the Deed to limit rentals to be longer than 30 days, the property thus will not be considered a true "5 unit commercial property" and my worries in Scenario A will not come to pass, right?

Transferring the conventional mortgage to the LLC afterward will, in many cases, trigger the due on sale clause which will cause you to go get the commercial mortgage anyways.The DSCR loan could be an option.

In the short term rental loop hole there is no loss limitation and that has the potential to be your best option for offsetting W-2 income.