My underwriting had me around break-even... not a killer deal by any means but between the low money down, rent savings,  principle paydown, and most importantly the experience...

This property is probably a loser on day one, especially if you set aside money for maintenance and capex.

The 'what you get' for the money factor is highly applicable from Brookings to Astoria and licensable STR coastal vacation rentals are still regularly attainable at workable terms, Luxury and oceanfront and lakefront properties tend to perform above the 10% of valuation in gross annual income for prime coastal STR's and as an example I've seen a $2.1 Million Oceanfront home produce $300k in gross annual income.

I've had the same question and have had countless house hackers describe to me why house hacking is a successful strategy even if you don't make money while you're occupying one of the units. 

Currently working as a lab scientist which relatively pays good but then again I'm not sure if I gotta start real estate after years of saving?

- Is it possible to avoid paying taxes if we just re-invest all the money to pay down the principal on the new mortgage (residential)?

This would save a ton on running them in from the street.

You're Pushing your potential buyer/buyers to possibly walk away if they can't find solution. more often than not the money you end up missing on, exceeds the 1%-2% coop commission you're trying to save.  

We currently do not have much money in saving due to recently rehabbing both of our houses.

Oakland is not a hands off market, but done right can make money.