Now, we are out of the identification window so we are left with either trying to save the current deal (which involves accepting terms that weren't initially part of the deal or call it quits and pay the capital tax gains on half of the proceeds from the sale.Are there any other options that would be worth considering?

When initially purchased, the property was in disrepair and had not been properly managed for 10+ years.

My hesitation is that after accounting for all of the items you are supposed to account for when analyzing a deal, the CoC return on the down payment is pretty much negligible initially.

A STR is both a business and a real estate investment.Having little oversight on a newly formed business would make me anxious also.As others have suggested, you should consider going to the area for the initial items(Purchase, renovation, etc).Once you buy 1-2 properties, you can look to unload these items to someone else.Best of luck

Anyway, those are my initial thoughts. 

While it’s a bigger initial expense, it aligns well with your long-term retirement strategy and could provide peace of mind for years to come.

You said the initial applicants didn't have jobs or savings?

Just initial talks w my civil, I think we can get 40 pads or so.

Bottom line, initiate the transfer of funds from Federa back into your bank account and contact your bank immediately to initiate a dispute.If anyone actually got to partake in an auction or got their money transferred back into their bank, I'd like to hear from you. 

As for capital, I will be utilizing my HELOC for initial fund on first deal.