You will also provide the whole amount if you plan on repaying the loan in full beforehand.  

We are planning to hold it for 5 years and bought a rate cap to cover the entire hold period. 

With the exception of building a trailer on the property (these are hard to finance), this sounds like a good plan AND if you are using it for your business AND your business pays more than 50% of the rent (if you have more than 1 tenant), then this is a more financeable property in the eyes of banks and credit unions as it would be consider a commercial "owner-occupied" property. 

My plan is to start with house hacking, but I have some concerns.

It became your strategic advantage.The Moral of the Story:Sometimes in tax planning, what looks like a lemon can make premium lemonade.

CT isn't cheap so if you plan on doing it there you are going to surprised at how poorly you do. maybe in the suburbs I'm not sure but as much as I know people call us from CT and everyone is rich and has lots of money and things are expensive out there. build to rent is a great model. we build 3 story walk up infill and keep it to the residential side. 3 units is the most units before it's commercial and you need engineering, etc. check comparable and things liek that. we came up with this design a year ago and we sold 10 if you want to talk further please DM me happy to connect. there are some great build to rent conferences. we went vertical not horizontal with it to save on build costs and design to fit on any infill lot. this fits on a 3500 square foot lot. most lots in our area are 30x120 or 30x150. in miami where I live now they are 50x100 or so. but any infill lot we can pretty much get this one on. there are some great build to rent conferences coming up too that if you like this topic I'd recommend attending I'm sure you'd learn a lot.  

To mitigate these risks:*Have an Alternate Plan – Be ready, if the market slows, to rent out the property.

Didn't she have a plan when she bought it?

We plan to renovate it ourselves and turn it into a 1200sq ft 2/1 to STR.

Unless you are buying at a significant discount, or are hacking it, or have some other value added strategy or plan.