For tax purposes, both investors would simply report 1/2 of all income and expenses on their respective Schedule E.

Before you've owned it long enough to appear on tax returns, an investor friendly lender will just do [ rent * 75% - PITI ].Once it appears on tax returns, if you need/want to exclude the one-time rehab expenses, put it on line 19 of schedule e with the comment "see statement X," and then statement X in extreme detail lists all the repair and rehab work you did, and furthermore you can provide me with every single receipt/invoice, exactly matching the line 19 number, exactly down to the penny (so, it's best just to make each invoice/receipt be a line-item on statement X... if Contractor John gives you 5 invoices throughout the project, show me 5 line-items).Only one-time repairs/rehab can be discounted from the mortgage DTI math.

The flip side of this is you just hold them in your LLC (w/o filing partnership return) and let them all flow down to your personal tax return (usually your schedule E).  

I mention this because if that $1,000 less is box E, F, and G stuff, that just means the other lender is quoting unrealistically low to 'earn' your business, and the Tax Man's going to come after you for the shortfall one way or another later on.

FHA for owner occupants is certainly the most popular loan product for small multifamily if you’re looking to preserve cash.

This is a very popular area for flips here in Jacksonville so it went quick!

So Rochester NY have areas where one block could be D,E class neighborhood and like 3 or 5 blocks down its A,B,C neighborhood.

Most lenders do not have a prepayment penalty on ARMs, but that would be something to find out upfront because that could be expensive if they do.ARMs are a solid way to buy properties and are much more popular in the JUMBO space because of large loan amounts. 

E.

The trick will be finding the B/E point, and that will determine how much you have to leave in.