Does the down payment and income requirements make it difficult for first time or low income buyers?   

This regulation allows property owners to build ADUs on their existing residential lots without the need for additional zoning approvals, which can significantly increase property value and rental income. 

Each room will be rented separately.How will lenders determine net income for calculating DSCR (ratio)?

You can qualify based on debt-to-income alone. 

Based on the rental estimates, we would net about $700 a month in surplus income since our mortgage is pretty inexpensive.I'm looking to get any and all opinions as I want to make the correct choice for us and also want to make sure I don't screw anything up if we do decide to choose option 2. 

I show them how to add some value for higher income, or partition off, or finish, or split off some land, etc. in order to bring in more dollars or reduce debt.

As long as the rental income covers your rehab and financing costs, you're good to go!

Taking away the garage from the existing tenants will lower the rents on those units.Currently they are:4 bed 2 bath rent = $2,000 3 bed 1.5 bath rent = $1,600I think the 4 bed 2 bath is the one with the partial conversion, and three units might look like:3 bed 1.5 bath = Rent $1,500 (no garage)1 bed 1 bath = Rent $1,1003 bed 1.5 bath with garage = $1,600Don’t be misled by the 6.6 cap rate in the listing, they are just using gross rents which is incorrect. 30% (25% expenses and 5% vacancy is standard in our market), and this is really a 4.7% cap rate.

Larger investors (20+ rentals, multiple partnerships, starting syndications, foreign income) can definitely benefit from larger CPA firms with a higher price tag. 

The DSCR's are 30 year fixed just using income from the properties rather than verifying your income .