Those areas are seeing the most appreciation and continue to grow with new residents moving there looking for housing. 

Second, Texas also allows Texas homeowners to do cash-out refinance their primary residence.

I would add that the problem extends beyond Class D properties.Twice I rented B class rentals to Section 8 residents. 

However, I'm short on cash (will be putting $20k of my personal money into this)  and I am exploring creative ways to source funds for the project.I’ve been quoted for a $100K HELOC on my primary residence with a 30/1m ARM at a 13.25% rate and APR, with an interest-only monthly payment of $1,016 and $3,825 in points.

•You can show financial hardship requiring a new primary residence.

If you don't own a primary residence I'd start there.

Others required that the house is a primary residence.

While I love the idea of eventually owning a paid-off primary residence, I’m debating whether it’s smarter to sell our current house and use the equity as a down payment on the new home or to keep it as a rental.

Capital gains are calculated as:Sale Price - (Original Purchase Price + Capital Improvements + Selling Costs) - depreciation (if applicable) = Capital GainYour mortgage or HELOC balance does not affect this calculation—it only determines how much cash you take home after the sale.In Massachusetts, if the home was your primary residence for at least 2 out of the last 5 years, you may qualify for the Section 121 Exclusion, allowing you to exclude up to $250,000 (single) or $500,000 (married filing jointly) of the gain from federal capital gains tax.

We've rented out some of our best investment properties (New Construction/Turnkey) to Sec 8 residents, and the rent guarantee always helps in achieving consistent cash flow each month.