When I underwrite my deals, I plan on 5 years without a refi. 

Be careful of guys like him.

I planned to tell them that "I will waive the final 2 months of the lease but unfortunately I will have to keep your security deposit".

You can turn it into a marketing tactic-we take care of the lawn, so you have more time to do other things.

Both told me that their department doesn't do environmental studies on properties, and suggested to talk to the Planning & Zoning / Developmental Service.

But while the plan was always to house hack, I didn't spend enough time looking at what would make the best rental.

One thing to note, gotta be careful with the family.

I live in California and planning to move in Illinois.

Having a 24 month term on the front end will also make my job easier doing the take-out loan when it's time to refinance into permanent debt, because there's room in there for a full year of tax returns to have been done in the middle (if your exit plan is to sell, it'll also make it easier on your buyer who will presumably be willing to pay a higher price if they can get an A-paper good mortgage).Ask for a 24 month term, tell your contractor you want it done in a year (and make it financially worth their while if they can pull it off), internally/mentally plan on 18 months, and I'm putting you on notice now to do your tax returns on time, rather than extending them (don't fight me on this, please just do it).Trying to get a renovation mortgage like this for only 1 point is likely a waste of your time, but if you want to ask, after you've secured the above as a 'done deal,' go for it, can't hurt. 

Having a rental property can pay your monthly expenses, plus hopefully some profit, and if it doesn't appreciate, who cares, you're still making money, paying down the mortgage, etc.