You state that you have 20% - 25% equity position for safety, but you don't based on the information you gave. 

For example, the FHA will all 100% financing on a purchase anywhere in the country, not just in the disaster area, for someone residing in a disaster area at the time of the disaster, whether they were a homeowner or renter.

Typically, we conduct background checks on only the individuals who are responsible for the lease (primary resident) and/or cosigners.

Mean while i would be building equity, and if rates do lower, or when the term ends, could refi for better rates and then maybe cash flow.My questions are:Is this too naively optimistic?

I would personally use some of that equity and get started with your first property.

I appreciate that, and you're right, any back-of-the-envelope calculation suggests that much of the wealth comes from the equity accumulation, even in the earlier stages of the amortization schedule.

Personally If you like your current residence and hope to stay there long term I would forgo major improvements on my primary and use all investment savings to make you more money and cash flow. 

A performance deed executed prior to default violates the borrower's right/equity of redemption in many jurisdictions. 

If you feel ambitious, you could try a BRRR strategy adding additional equity to the subject home and then taking equity out of it to pay off either the HELOC or if you decided to the refinance the primary residence. 

They cited insurance reasons, which could very well be true, but many residents felt it as a big "f you" Now folks from outside the community could argue this was an entitled stance from the residents, to feel they had access to this private land when they didn't, and that on the face is certainly true.