The rationale is that your rent will be higher per room than what would be typical for the market rent for that house.

Maybe for your market this is typical, but even in the SF Bay Area I would not do this. 

Typically, the first year of mortgage interest expense is greatest for a property with an amortizing loan. 

I was leaning heavily towards "no" anyway, but y'all confirmed it for me.Some of these answers beg another question...how far in advance do y'all typically let tenants move in after they sign the lease?

You could do an option contract, but our typical deal would be this (BTW, we used this on 16 ac. site in Westminster, off Hwy 36 and Church Ranch Rd./104th)Purchase and sale agreement, with a standard escrow.Escrow closes upon date certain, or when the city issues unappealabel entitlements, zoning etc.DD of some period, 30, 60, 90 day, with some non-refundable upon reaching this date.Reason to do it this way is you have a solid contract, if and when you receive zoning, you can close without question.

Commercial lenders will typically lend to an LLC.Appraised value is based on rental income, not on comps.Downsides:Probably adjustable.Probably higher rate.Probably get to harass you for your financials on an annual basis.

For a typical AB-BC transactional loan, @Milton Peggs , you (called B) find a home seller (called A) and a buyer (called C).

If you're looking to do a flip, then you're more exposed to being hurt by a market drop so it really depends what strategy you're going for.I live in a very hot market where condos & townhouses typically close in 7 days or less (not uncommon for it to sell before open house) and usually over asking price.

I know FHA has a much lower downpayment than a typical loan but that comes with some guidelines. 

Although these things typically have a longer life then your typical leaky faucets or garbage disposal etc.