Since you bought this for $5k less than the appraised value, I don't think there would be a big enough jump in adding value where you can do a cash-out refinance, and you would likely be bringing money to the table to pay off the HELOC with a standard refinance. 

Mortgage interest is only deductible if you have more "itemized deductions" than your "standard deduction."

Your attorney's advice aligns with standard practices to mitigate risk.

However, here are some considerations:Permitting: Unpermitted structures are often a red flag for lenders because they may not meet local building codes or safety standards.

The owner expects to close in 30 days ( standard closing windows ). 

The GC fee for a standard build is going to range from 18-35k depending on the builder per house.

Obviously there is a lot to discuss on this topic, but for a very quick glance, here are a few pro's and con's to consider when thinking about section 8 rentals:Pros:Guaranteed Rent Payments -> The government pays a significant portion (if not all) of the rent directly to the landlord, providing a reliable and steady income stream.High Demand -> There is often a high demand for Section 8 housing, reducing the risk of long vacancy periods.Cons:Inspection and Compliance -> The property must pass an initial inspection and comply with health and safety standards set by the local housing authority.

Banks have tightened their lending standards, and where they used to offer 75-80% loan-to-value ratios, now they’re only offering 55-65%.

And trying to set up my SOP (standard operation procedure) for me.

And of course there's the standard closing costs of the loan, initial insurance payments, permits etc.