My concern is whether the city could deny permits for these modifications, such as removing walls or converting a garage, or if they are mainly just concerned with safety and habitability.

@Jeff Hines I invest in mobile home parks.

My concern with the home equity loan strategy is I'd still have the first home mortgage, the equity loan, and a new mortgage (albeit reduced from the down payment).

I appreciate and welcome any thoughts, concerns, or ideas!

A concern, however, if we do a sale, is with the price, as I understand that if I sell at too low a price (say, $200K, give or take a few thousand to pay off my current mortgage), the IRS could assess a tax on my parents if the price is more than 25% below market value. 

I’m mainly concerned about the rate change happening without prior notice, especially since both loans started and are closing on the same day.I’m scheduled to sign tomorrow and close on Friday.

In desperation, I even visited their office in person, only to have my concerns dismissed and another empty message taken.

My concern is that I might be over leveraging myself if I try pull out a 20% down payment for a DSCR loan.

The current owner is usually not be very inclined to give the news to the tenant out of concern that the deal does not close and they have to deal with the vacancy.

Private money won’t take it because if I can’t refi it out they won’t get their $ back and I can’t ask my investors to do the same for the same concern.