If you walked into a bank, your pre-approval would likely never qualify for a house hack duplex.Did they count 75% of the expected rent towards your DTI? 

I actually recommend house hacking as a first step if possible. 

Which is why I think house hacking is best for 90% plus of new buy and hold investors.I wrote an article on this a while back that goes into more depth and you might find that helpful: https://www.biggerpockets.com/blog/get-a-loan

We live well, have a nice house which I built from the ground up and saved 200k off the top. 

I am looking at different loan options but to break even (not having to put any money of my own in the house after the initial down payment) the current down payment required is that much. 

Section 8 may seem like a home run but I've seen houses destroyed in a years time, I would steer clear. 

He's an experienced agent. landlord, he has his own Airbnb house in Covington and he understands that part of NKY really well.

It's one of the last few "affordable" areas near downtown Denver.Are you buying as a primary residence, looking to house-hack with the studio out back? 

If I were your age, I would 100% do a house hack of some kind.  

I've dealt with this exact same situation, and ontop of everything I was dealing with the Section 8 housing authority because my tenant was a voucher holder.