Keeping the house is not an option, unless they would qualify under a chapter 13 BK.  

I will email you a list of qualifying questions.

How will you know if you'll qualify for bank rates in advance, what surprises might take place at the closing of the 1st and 2nd loans?  

The goal is, or should be to secure income, so if the concern before you even rent is that you might have to evict a tenant, the focus should be on screening and qualifying potential tenants so as to try to minimize, as much as possible, the probability of renting to a troublesome tenant in the first place.

At a minimum, a home usually must pass a 4-point inspection to qualify for insurance (and thus financing), so if a house needs something as simple as a new roof or a new a/c or furnace (which is very often the case with REOs), it kills the deal for conventional, FHA, or VA financing. 

In the times we live in where identity theft is very real, I would think many qualified tenants would refuse to supply this information.  

Once you find a qualified tenant there is additional paperwork to complete, specific to the tenant.

Are you unable to get a conventional loan yourself or would the property not qualify?

It seems like all it is is, I qualify for a cash-out refinance, I put that amount towards a down payment on another duplex or 4-plex, and I would then be making 2 mortgage payments instead of 1 currently.

Just remember, you'll be looking to finance 75-80% of the ARV in order to qualify for most loans and you'll want that amount to be equal or greater than the 63K you've put into it to make the BRRR strategy work.