I suggest you research cap expenses and cash flow on BP.  

Are there other less expensive options for them nearby that they might buy instead?

At first, we were going to GC the project, bring in a KP to meet the net worth requirements of the loan and raise the equity, however, I am considering just working with an operator who has the net worth requires and can raise the equity themselves and just GC the construction and ask for a 5% GP. 

I can comfortably afford both the starter home and the more expensive home with my income, given my DTI is basically zero.

Just make sure you follow your local landlord tenant laws to follow any required processes.

West Hartford Center is overly expensive compared to other areas.

We have thought about how the HELOC payments could be "wrapped" in the expenses of the short term rental once we have it up and going, paying it down over time.

If one meets the requirements of an accredited investor, do they go register somewhere or how does it work?

The lease has to be supported by rent schedule on appraisal, and not a lot of million dollar properties are going to pencil out even with the larger down payment requirements, but it could.

I'm looking at 185k with 5% down but it seems that in factoring in all other expenses (vacancy, capEX, repairs, utilities, management, etc.)