Which means it is WAY below what the market would demand.

Whether or not this is a good strategy is different depending on each individual's situation.

According to BestPlaces and Niche, 1/3 of the people in San Antonio rent while 2/3 own a house, which suggests there's little rental demand there.

If you show him that X+y+z=W then his only argument could be A) your numbers are wrong, in which case you ask him for his actual numbers, B) the cap should be 4.4%, in which he should provide proof that the area demands such, or C) he's the swindler. 

This individual states that if we own a primary property that we reside in, we cannot for any reason buy a rental property and alternatively live in one of these units and put our primary residence up for rent and have it considered owner-occupied because we already own one property. 

Ugh.Does the real estate cycle ever really balance this out in certain high-demand markets?

Make sure there is demand for the business type.

This individual states that if we own a primary property that we reside in, we cannot for any reason buy a rental property and alternatively live in one of these units and put our primary residence up for rent and have it considered owner-occupied because we already own one property.

NPN space is great if you want a job and or like all that stuff.Or invest with a fund that does the heavy lifting cant see why the one off individual would take this risk.

@Todd Keith I'd agree with Kory here on staying away from those areas... but the area's he's suggest (I live in one of them) are all way more expensive and probably won't cash flow.I'm personally ok with neighborhoods with crime if rental demand is really high, but only if the local landlord tenant laws are very very landlord favorable.