Where you planning to house hack? 

I found the house on Zillow and ended up going through an agent.

These are multiple assets of all sorts of things, retail, houses, condos, office. 

I have 2 options:- finance the construction pre-selling the apt, and take my profits (expected to be around 700K pre-tax); or- finance the construction with a 6-7%/year loan (collateral = my house), keep the 10 units, and once the building is completed in 24 months, rent them for circa 180K/ year gross.

If you are planning on selling, contact a realtor to make sure you are getting a fair value for your house. 

I did that out of necessity with my first 2 houses and was able to buy in a nicer neighborhood than I could actually afford because they weren't updated. 

it's out of state so this is not a house-hack so why a duplex?

I want to refinance it about 12-18 months later into a bank loan. pull out money to pay off the HELOC and enough for a down on a 2nd house or duplex.

We have told my ex-wife that we are willing to let her stay in the house for a time but she needs to pay rent.

However, your investment in the house, officially called tax basis, did not go up.