Or do they leverage debt, and use the subsidies to cover the equity needed?

Some want equity which is a little tougher to structure but possible.

I reside in Texas, no income taxes.   

If so you need to fall into the guidelines (for the investor whos funding it) regarding non arms length transactions.The most common scenarios they typically prohibit are:- Gifts of Equity- Bailouts- Leaseback OptionsAt the end of the day it needs to be a legitimate transaction, with legitimate funds coming into close.

I would keep as much liquid as possible and essentially get you to 20% equity or more by renovating the property. 

That is lower than market and puts you in a cashflow-neutral situation, but it is unlikely your residents can afford that.

If the seller has equity at the closing table part of the proceeds could go towards the utilities being caught up.

I have on multiple occasions, once with one of my own properties and a few times for clients been able to not only get the money they paid for a property but also gave them extra money in a total loss (protected the equity that has accrued due to inflation in the industry).  

I assume a higher upfront cost as far as land purchase and the actual build but you would have a brand new house, instant equity and hopefully maintenance free for quite a while.

I am a long time Little Rock investor and resident.