A downside of paying off the loans removes my inflation hedge.

The biggest hurdle is banks need to have the ability to go inside, with utilities on to have an appraisal.

The downside is you will need to live there, for a minimum of one year (to satisfy FHA Requirements); AND because you closed personally, you will not have Asset Protection, in the form of closing in the name of a LLC.

One other downside besides the higher rate and lack of a 30yr. fixed option is that having multiple properties in one loan can complicate the sale of the properties individually, or to refinance, pull cash out, pull a line of credit, etc.Other options you might consider:1031 exchange those SFR's for a Multifamily building(s) (This is what I would do).Pay down the smallest mortgage to free up a new mortgage.Use a HELOC.

This was essentially the biggest driver of the delta.

Keep a sell order in place at 5-10% below the current price to minimize downside risk.

My downside on the first option is that I will be running out of cash after a couple houses (with leverage of course) as the money will sit there.

The key is to keep the %'s low on the cards so you have the biggest credit gains! 

The biggest one is whether this is an investment property, or whether you will live there?

Lack of follow through over time was the biggest obstacle.