If you can run a successful arbitrage business you can make a lot of money, and if you hedge your bets and put that money back into owning more assets then why not?

When you refinance a property as an owner occupied property, you are signing a new 12 month occupancy clause which means you need to live in the home as your primary residence for 12 months after you do the refi.Rates are on a downward trend and likely will continue to do so for the next 12 months so you may have time to refinance your loan in the next year or two into a fixed rate while you are still living in the property so if you planned on living in the home for 3 years, you could wait 2 years for rates to drop and then refi as owner occupied into a new 30 year fixed rate.Alternatively, you could get into a fixed rate now at at 5.875% on a 30 year fixed rate if you qualify for the "HomeReady" program (HomeReady is an income limited program that gives buyers a fantastic rate).

Work with a broker who has access to a large variety is going to help you find an appropriate option for your situation vs a direct lender who can only sell you their limited product set. 

In San Diego county, this is limited to the city of San Diego.   

It is not a problem.There are different remedies, including soaker hoses and other remediation items, to limit soil impaction, but piers and leveling are common. 

I even have seen lenders recently with a 0% down loan that was not limited to first time home buyers. 

If so, is there a limit to how long we must hold the home as an investment property before we can move in and convert it to a primary?

The person giving the reference may have very limited experience or could be completely clueless about what their manager does and how they do it.

However, our buyer's list was limited—only about 200 buyers—and after several potential buyers passed, we finally secured an offer for a $5,000 assignment fee.As we approached the closing date, our buyer began dragging out negotiations, which added to our stress.

The construction cost seems cheaper than I thought.HELOC is a good option for short term funding.. and there are max limits.. may be $400K or $500K something you should consider since it exceeds your expenses.