There's a few other things to think about too: 1 - Possible owner financing if he wants to still get a stream of income into retirement at an attractive rate compared to the rest of the market (win/win scenario, you don't need to come up with as much cash, and he makes a little $ on the %) 2 - Consider a post possession if he needs some time to move out but needs the cash up front for whatever reason 3 - Leave all the furniture/junk in the property and you'll handle clean up etc. 

It can be challenging to find ways to house hack in a market like this one for sure.

My area (Anacortes Wa) doesn’t seem like a good market for multi family.

The rule states that 75% of market rents for all units must be more than the total mortgage payment.

Marketed the property for $179,000 and went under contract and closed for $186,000.

And it works in any real estate market depending on your needs.  

From asking around the community, it is difficult to find cash flow under the current market conditions.

I am leaning towards demolishing the house and building a simple 3/2 but I have no market data in the city for new builds in recent years.

I’ve interviewed a couple of Realtors in Oklahoma City, but I’ve been finding that the general consensus there is that the market is not in a cash flow cycle.

If you cannot find what you’re looking for in your market and you don’t want to invest too far, consider pivoting to a single family home.