Having owned property in rockford its not a great appreciation area so getting a HELOC will probably take 5-10 years based on loan pay down and maybe some slight appreciation.

Yes, the government pays the Section 8 rent timely, but more and more tenants are having to pay a portion of their rent.

You may be required to make estimated tax payments when the property sells.It depends on what your 2024 total taxes due were and 2025 estimated total taxes / withholding / estimated payments are.If you pay in atleast 90% of the current year tax or 100% / 110%(Depending on 2024 income), you are normally considered good.You may want to consult with an accountant for more clarification.

Do you plan on renting out your current house or house hacking it? 

However, my portfolio is mostly B2B and the businesses I work with are comfortable paying the nonrefundable fee plus the refundable security deposit. 

However, some investors don't mind this strategy if they prefer not to put a lot of liquid in up front and plan to refi out within a few years of closing (which seems to be a great option with the talks of the FED reducing interest rates this year).It really comes down to investing in a growing market, in a good neighborhood & building a great team to support you.

The plan is to use the proceeds from this rental to buy another rental property for about $650-700K, plus to pay off the home that they live in now ($260K owed).

If they don't pay willingly, what are my options? 

Yeah that sounds like a good plan!

You don't need 20% down.Sounds like a great plan.