I see how I didn't properly document that.

Traditional and Section 8 applicants can all apply for any rental.I recommend asking market rent for unit #3, then vet your applicants properly. 

These require a properly sized escape window (minimum 5.7 square feet of openable window, 5.0 if your at grade) a smoke detector in the bedroom, a smoke detector outside of the bedroom within 15 feet of the bedroom door, possibly a carbon monoxide detector outside the bedroom (same rule as smoke detector that is outside the bedroom).  

Not an accountant or cpa but there are many ways to reduce taxable income if you have a business such as paying kids to do some work and make sure you account properly for expenses.

Equity % will be important but since that mortgage remains in 1st position this should be possible to do...as long as the "subject to" deal was structured properly sort of thing. 

If the investor fails to properly manage the asset you can lose money.

Maybe someone with recent experience can chime-in, but without proper licensing you can't do what you're describing in Philly. 

@Julio Velazquez a stabilized property will provide more income, cost more and be less work if the tenants were properly screened and everything is documented.

@Obadiah Roszman and @Janelle Carlson if you can qualify for a Fannie/Freddie type of loan then I wrote an article on how to properly structure your cash purchases HERE. 

The vast majority of our rentals (SFHs in DC proper) are unfurnished, and we advise owners that that's the best way to go.