On the surface what I normally see in these cases are Real Estate agents that disappear after the sale because they comped the rent value too high, followed by an inexperienced PM that has a hard time explaining WHY the rent price is too high, and finally an investor that put his trust in all the wrong people to achieve their goals. 

Can someone explain how its legal to require this of the property owner and not just require it of the occupant (if they are operating a business out of it)?

@Brock DowisEvery property is going to have unseen challenges, you should make sure to have a home inspector get a list of the issues so you can objectively address those problems.

My initial plan was to house hack a single family home, with cashflow being the main objective.

Explain to me in simple terms why I should look at a mortgage as 3% and not 40%.

@Wayne Brooks explained the two requirements for full tax deferral in a 1031 perfectly. 

@Melanie Dupuis thanks for the comment, although could you explain or share a bit more about this suggestion? 

Reach out if you have additional questions on this, and I can help explain what kinds of options you may have for this type of investment (open-ended vs closed-ended, private vs crowd funded, value-add vs core, etc)Hope this helps.

Explain to them that a lot of people will take fsbo to mean "I can talk them down and get a good deal". 

Explain to me in simple terms why I should look at a mortgage as 3% and not 40%.