Most of the PA income I plan on reinvesting into NC properties, and as such want a tax efficient structure.

Does the down payment and income requirements make it difficult for first time or low income buyers?   

The tax deduction is limited to 30% of your adjusted gross income.

This regulation allows property owners to build ADUs on their existing residential lots without the need for additional zoning approvals, which can significantly increase property value and rental income. 

You can qualify based on debt-to-income alone. 

Each room will be rented separately.How will lenders determine net income for calculating DSCR (ratio)?

I show them how to add some value for higher income, or partition off, or finish, or split off some land, etc. in order to bring in more dollars or reduce debt.

Based on the rental estimates, we would net about $700 a month in surplus income since our mortgage is pretty inexpensive.I'm looking to get any and all opinions as I want to make the correct choice for us and also want to make sure I don't screw anything up if we do decide to choose option 2. 

As long as the rental income covers your rehab and financing costs, you're good to go!

The DSCR's are 30 year fixed just using income from the properties rather than verifying your income .