I was going to use an FHA loan to put 3.5% down and live in it as an owner-occupant.

It does seem like the owner is less of a landlord and more of a glorified RA.If you can find the right tenants and live there as long as possible to make sure care is given to the space, I believe that will go along way.

Either way, the best next step for you is going to be to talk to a lender and dig into your personal situation.  

Dont know the pricing in Mass but you may want to see how much it would be to do a tear down and go new 

Visible dirt/dust on almost every surface, trash (including Q-tips) left on bathroom floor, toilet not cleaned, food splatter around kitchen, smudges on walls, windows and mirrors, list goes on... 

I would think that the bank is still going to hold me responsible for the mortgage and that the mortgage would still count against my debt to income ratio, making it more difficult to get another house. 

We are such a visual society and there is no going back on that.

I'd sit down with a real estate savvy CPA and go over the numbers.

I have only gotten this to go through a few times and not without much effort. 

I probably going to use them for equity financing on a rental property that is paid for.