If you might move out in 3 years you either need to sell or convert to a long term rental, and unless you get a great deal it probably won't cashflow well as a long term rental in Charlottesville.

I think I could convert it into a spa and rent out rooms to barbers/ hairstylist/ etc.

When you call the city, ask them if there are any zoning requirements around converting it to a garage that you need to adhere to.

It isn't so much the down payment for House 2 (you will use whatever tool is available to you ie FHA, 203K, etc.) as it is your lender continuing to lend on your risk profile (asset vs. liabilities, salary, etc.).I converted my House 1 into a rental and my tenant signed a 2 year lease, which I showed to my lender.

LOL I'm working on number 4 that's kind of a 4 plex converted over from a single family residential. 

With respect to flips, an example of this could be converting a 2BD house with a sunroom into a 3BD - something like that. 

I’m trying to find out how to get a converted room permitted as a 4th bedroom.

youll pay upfront ~4k and then 2% for converting to cash. it helps build your biz credit. you should talk to them

A 1 bedroom with a small office that can be used as a bedroom is worth more than a 1 bedroom, but a 1 bedroom where the living space has been converted to a bedroom, is just a 1 bedroom with a door on the living room.

This can be converted to 3br/2ba, comps for 3br/2ba w/ 300 sqft more in this neighborhood are around 485k.