@Heather Jensen Are you looking to build a house for investment or your primary residence? 

We would like to avoid putting our primary residence on the line for this.

The primary challenge was ensuring the property met all zoning requirements for residential use after being a commercial space.

Start with your primary residence if you are currently renting.You can buy a duplex with only 3.5% FHA Loan and rent out the other side while you continue to learn about real estate investing.

Are there additional primary residence requirements such as homeowners exemption required, or anyone know if this is coming down the line?

We have >$2m in debt spread across the investment properties and our primary residence.

Buy and occupy for 2-3 years, improve it, and sell it tax free (up to $500k if you and your partner both OO for 2 yrs) so you can move onto the next one.Starting to think team house hacking might be the primary way for folks to make this model work nowadays.

@Paul Amegatcher I read your explanation of a "Zombie Foreclosure/Property" which was leaning more towards advice for the Buyer. 

If my primary residence has $500k HELOC, could I use it to purchase a 2nd primary residence and rent out the first one?

From my observation/experience, Berryessa and Piedmont Hills areas are more family-oriented, so the demand there is generally for primary residences, renters, or travelers visiting families.