I do like the desire to build unique, a unique new construction unit will do good in most markets. 

Although I have submitted one offer, I'm not confident it will be accepted.My primary challenge has been the high asking prices for most of the homes I've considered, which make it difficult to achieve a desirable return on investment (ROI).

Also there is this fear like high density housing might make the neighborhood less desirable and dilute the privileged status.

But the key here is to have a desirable property that will cash flow. 

Apparently our DTI is too high for the HELOC so we can do a cash out refi but that is less desirable because it means we cannot then get the loan for the rental property despite having 25% down.

I know this isn't the greatest time to get into the market and am well aware that Santa Fe is VERY competitive and low on inventory but my life/career is dictating decisions more than the desire to grow a portfolio in hotter markets (for now). 

Desirability, yes.

Insulate, add electrical, mini-split ac, and possibly plumbing, as desired, drywall, tape and paint, put built-in cab's on one side if you want, hang the tv, speakers, etc, install bi-fold/multi-fold doors on the side leading to a patio, and replace the garage door with an insulated one keeping the track and removing the motor, or install a carriage type garage door into the existing garage opening.

Seems to me that selling to an organization like Habitat for Humanity might help you ensure you have a relatively consistent buyer, assuming the parcels you purchase are in desirable areas for them and meet their acquisition criteria.

Great post - I have several inquiries for clients with the desire to own coastal STR's and just noticed the red tape is suffocating when I would dive into listed opportunities and feasibility with the municipalities.