Most people who want to use a portfolio lender are doing so because they do not qualify for the traditional Fannie/Freddie loans.  

This will be an over simplification but look at some simple numbers:Year #1:4-plex @ $400,000FHA Mortgage (3%) =$1,700 / month = $20,400 / year3-rents @ $1,000 / month = $36,000 / yearNatural / Forced appreciation (10%) = $40,000 Year #2:Refinance @ $344,400 ($440,000 value)Traditional Mortgage (4%) = $1,650 / month = $19,800 / year4-rents @ $1,000 / month = $48,000 / yearNatural / Forced appreciation (10%) = $44,0002nd 4-plex @ $400,000FHA Mortgage (3%) =$1,700 / month = $20,400 / year3-rents @ $1,000 / month = $36,000 / yearNatural / Forced appreciation (10%) = $40,000 With natural and forced appreciation plus the equity gained by investing rents, there should be plenty of room to lower the mortgage amount - watch out for higher interest rates because they will be something that bites after coming off a FHA loan especially if rates increase.

An appraisal coming in high does not reduce your down payment or PMI requirements if you are getting a traditional mortgage.

Hey there @Antinia TaylorIt's best to only buy a rental that cash flow as a traditional rental.

A traditional lender will not likely allow you to use private money as a down payment.  

Red states, traditionally, have good rental cashflow relative to purchase price.  

Class A & B - Traditional property managers.

But I would say that in your case, just do the first property FHA and the 2nd one traditional, biting the bullet in the short term (it's just one or 2 years to satisfy the owner-occupant requirement) and be happy knowing that your tenants are building your equity.I know you don't want to hear that, but man....

Its one of the reasons why the seller was willing to go with us instead of a traditional listing.The location of this property is in the prime area of San Pedro, CA (borderline Palos Verdes). 

@Anthony Dadlani this specific scenario might be only once every 5 years, however, I wouldn’t mind partnering with someone for a more traditional flipping strategy.