We have 2 loan scenarios: FHA with 3% interest rate and 3.5%($17,000) down BUT we have to claim $150k of income on our tax returns for 2 years and pay IRS 70K (2 years worth) total in taxes because we are self employed. 2nd scenario: private lender offering 4.5% interest rate with 5% ($27,000) down 8 year interest only loan converting to fixed thereafterwhats the wise choice?

You'll almost certainly have to self manage.

This is considered self promotion and is prohibited in the forums.

You could consider airbnb but you would need a good STR manager for this and I'm not sure the margin would be worth it if you don't self manage. 

I self manage my properties, and that's my preferred method.

May do other areas but not yet because I self manage.

This is a great forum with very knowledgeable members that will help to guide you in the right direction.There are a few self-contained guides that you can access here: https://www.biggerpockets.com/guidesAlerts can be really helpful too: http://www.biggerpockets.com/alerts

This is a great forum with very knowledgeable members that will help to guide you in the right direction.There are a few self-contained guides that you can access here: https://www.biggerpockets.com/guidesAlerts can be really helpful too: http://www.biggerpockets.com/alerts

Are you going to use property management or will you self manage?

I accept a lot of those issues are both self induced and partially inherit.