Historically low cap ratesHistorically high occupancy ratesHistorically high numbers of young people expressing no desire to ownHistorically low interest rates All things return to the mean.

I've had %100 occupancy for the last 8 years.  

if the 2 bedroom were already there, then the assessor would have the correct total # bedrooms of the house on file.does the assessor record/certificate of occupancy list how many beds and baths?

Ask for market occupancy and rents.

Found house listed on Hubzu that is not listed on MLS, is cash only bid offer forclosure, states that property possibly has occupants... 

In fact he could buy a 4 plex for better break even occupancy.

Nope...FHA loans are only for owner occupants...

The assumption is a no go since the original mortgage is a FHA (I would not qualify as a non owner-occupant), and the seller is not interested in a Sub2.  

Not over your head at all...Congrats - you have some good ideas....What I would suggest is a prop that is lower than market based mostly on cosmetics...flooring, paint, minor drywall, possibly cabinets, etc...you can get substantial discounts & still get the 1st time buyers rates & programs & such - then hold for a few years & possibly rent it out....or another option would be HUD foreclosures - they have (in our area at least) a 10 day "owner occupant priority" - before the true investors can even bid on them....much less competition....you may want to look into that avenue as well - Whatever your method - congratulations...

I got a good deal because most people wouldn't want to, or couldn't deal with the mess & the occupants, but it didn't bother me.