One my friends just got done dealing with Greenfield and a multiple lot  re-zoning and permits for new builds.

The property is a duplex with an ARV (after repair value) of $700,000, making it a strong deal.However, I want to ensure I’m not overlooking any potential red flags.

Or, the actual location could be terrible (like ghetto or drug area or war zone).

Every interaction with them has raised red flags. 

They said that kind of project would basically convert the property to an apartment building and requires R6B zoning.

Nationwide sent a non-renewal letter for an 8-plex, claiming property was within 1 mile of a fire hazard zone.

Is there a housing shortage or is there really a problem with the BARRIERS caused by productivity, land use, zoning and mandates that limits construction?  

I would like to tear down and rebuild the front house and rent it out I already confirmed with the city that the zoning is ok for the rebuild.

Must have multi-family zoning and be 500+ feet away from another non-owner occupied STR or you must live in the property for 6 months out of the year. 

I think your best approach is to pretend you are the investor yourself, calculate build cost (mortgage with interest) + Maint / cap expenses/ management fees according to your zoning and then compare that to the average rent in that neighborhood.