To All, By paying off 2 mortgages worth around $220K, wouldn't I be increasing my home equity and also helping to reduce my debt to income ratio i.e. a factor very critical for getting future mortgages for future rental investments?

good point on factoring in the 5% from gross rents on vacancy, and the 8-10% when self managing. 

If you choose to separate everything be sure to factor that cost into you purchase price it can be a big expense.

Is this a factor driving up prices? 

Factor that event into you math and see if you still like the deal or what it would take.I have spent the last 20 years working for a global manufacturer and I am not too worried about off shore manufacturing - if he has not been wiped out in the last ten years (incl 2008-2012), he's probably going to be fine.

How many current mortgages is not the important factor... it's their combined balance.In most cases you'd be paying off both the first and second (and any other liens) at settlement and the seller would walk with the difference... in this case roughly $20k.

Personally, I don't think schools are that big of a factor for rentals in most areas unless you only want to invest in A class neighborhoods.

Obviously like you stated, taxes and VA limits will be different for different states and countieswithin those states so looking at what you can afford to live within your means in case of vacancies is a big factor. 

Factor in a bump for FHA and a bump for Multi, should be 5.1-5.25% at best.Have you shopped around to regular residential mortgage brokers as well as your local bank?

I know location is also a big factor.