So a conventional lender typically wants to see your DTI come in at 45% or lower including your potential new mortgage payment. 

(I super simplified this not taking into account reduced interest from accelerated pay down)Example 1:Mortgage 150k (paid down additional 50k) and 50k needed for next downpayment.Monthly mortgage payment $1000 (not including taxes insurance etc)Cash left after 2nd purchase $0Example 2:Mortgage 200k, 50K needed for downpayment, 50k in reservesMonthly mortgage payment $1000 (not including taxes insurance etc)Cash left after 2nd purchase $50kWhich example looks safer?

This includes a weather barrier as well. 

Here is some back ground.Tax Certificate, Former Owner is Still in Possession, Bought at 2018 Sale, Residential Structure on PropertyI was going to add casualty insurance to the property but was unsure if I need to wait for Tax Deed for the premiums to be included as an expense with redemption or if I add insurance with a certificate and owner is still in possession if those premiums+interest will count toward an expense at redemption.Any help would be appreciated.

You really need a Termination Agreement signed by both parties because contract dates are actually not absolute unless it includes special verbiage like "time is of the essence". 

or will closing costs including transfer and title fees, etc eat up a lot of it?

They owe 90,000 with 670 monthly payment. the house is worth 160,000 as a 3-2 with 2 car garage. property is in great condition. the house they want will require a 60k down payment and they may still qualify with another mortgage but i cant guarentee it.I cant buy it from them because my DI ratio is maxed as i have 2 HELOCs on my rental properties along with 3 mortgages including my personal property. my wife is a stay at home mom and I own my own business, qualifying for a mortgage is insanely difficult with no W-2 income.

They owe 90,000 with 670 monthly payment. the house is worth 160,000 as a 3-2 with 2 car garage. property is in great condition. the house they want will require a 60k down payment and they may still qualify with another mortgage but i cant guarentee it.I cant buy it from them because my DI ratio is maxed as i have 2 HELOCs on my rental properties along with 3 mortgages including my personal property. my wife is a stay at home mom and I own my own business, qualifying for a mortgage is insanely difficult with no W-2 income.

Any advice is much appreciated.Purchase price: $420K4-Units - All 3 bedroom 2 bathroomAnnual Operating Income (rent): $42,840Current Annual Operating Expense (Water/Trash, tenants pay utilities): $2,400Down: 20%Points: 1.35 (to keep the rate @5%) Rate: 5%Total Aquisition costs (includes closing, appraisal, inspections): $99,350Mortgage (P&I): $1804Property Taxes: $5,212Insurance: $2,058

When I was searching for properties, the listing agent's calculated Cap rate almost never factor in property management fee and I have always include it in my calculation.