Please verify with zoning and ask them for a verification letter so you can have approval on hand.

They said it needs approval from city.we appreciate your thought! 

I'm wondering, is this not a major problem for landlords if no further applicants are getting approved for vouchers?

With banks, you face lengthy approval processes, piles of paperwork, and significant time spent waiting—time that could be better spent using the funds to address your initial needs.

My concern is that if i apply for a HELOC to use for the down payment before i apply for a mortgage, A) I wont get approved due to my DTI ratio, and B) I wont get approved without first showing the bank I have the 20% down payment before pulling the HELOC.

As preivously stated above, I have a small storage space (around 200 sqft) that can be converted into an ADU (already have approved plans from LADBS) and am meeting with various contractors and teams.

If the seller accepts the offer, (contingent on appraisal[as per court approval requirement]), How should i proceed in the situation.

This restriction limits the number of homes we can build and impacts affordability.If we were approved to develop more 40-50 ft lots, we could build more units and provide a more affordable product. 

Should I just completely ignore the FHA loan and try to get approval with a smaller down payment?

I feel like it would be great to trust a property management company on all of this, but it would be hard not to step in if you could do a better job at screening bad tenants (eg screening HUGE future problems).I initially managed properties myself, but now I delegate that responsibility to my business partner, personal assistant, or a property manager at my brokerage.Most PMs I know will send you an applicant for final approval and you can get on the phone with them and ask them questions