If I purchase a second house, first is converted to investment

[Drew Snyder]

That's at least what ally home loan is saying to me. 

Just to give you a few details, I have 20-30% equity in property #1. 

My goal was to do the owner occupy dance, but they are saying that's not possible. I would almost for sure qualify for the 2nd home without offsetting the rental income as well.  

Any advice/tips?