Usually these investors are looking to do live in flip as their primary residence.

Hello:I got a quote for converting a 16x10 living room into a bedroom.

If you use the search function, there are a number of threads on this.Pros-you can rent by the room and make more moneyCons-students are often less experienced at living on their own and may do things that result in repairs (eg wrong soap in dishwasher), higher turnover, more calls to deal with things, higher chance of parties.If you do it, you may want to get a cleaner in once a week to clean common areas (students clean their own rooms and keep the place tidy, wash their own dishes) and you will need to get someone in to take care of the yard.

I will live there for a year (It was an REO and I signed an addendum that I have to live there at least a year) while I complete the remodel and then rent the property out to establish cashflow.

To me, this would have never been the conversation a few years ago when rates were more comfortable for the average investor (likely 5% and below), but it is the reality we are in now!

I personally wouldn't go as far as to call them shady, but there's definitely been some fees and hurdles that weren't exactly laid out during the initial conversations and I'm in no way questioning your use of the description. 

Part of your rent payments can go towards the down payment, allowing you to build up the necessary funds over time while living in the property.

This is because we are all living in simulationNothing is real.

I don’t plan on living in Philadelphia long-term but probably will for at least the next year.

We all live and learn.