RED FLAG right away, but willing to look into it.

You'd have to subdivide most likely to build two homes (never heard of a residential zoning that allowed two homes on one lot, but I guess its possible).I guess you could keep ownership of the land in a LLC and sign a 99year ground lease to each of yourselves so that the improvements are your personally, respectively.  

However you need to check the zoning restrictions for STVRs in your neighborhood.

Taking away Creative Financing and traditional Hard Money Lender, what else have you guys used or heard about that has similar terms to bank financing but is easier to work with and less red tape?? 

They red-tagged us and we were forced to pay for plans to be drafted, approved, and several inspections before they permitted us - set us back several thousand dollars and an extra two months as a result - still, we were able to complete the project and still appraised for more than we spent.

The house, with its wrap around porch, is zoned B-1.

I red a couple of books by Brandon Turner and a couple by J Scott.

Short not all inclusive summary of regulations:You need a Zoning Permit for limited lodging to rent your home for up to 30 consecutive days to any one person or group.

If you still have some gain on a 250K single situation you can explore Opportunity Zone options since that is the only possible way I know of that you might be able to retroactively exclude gain. 

I know you can't trust Zillow, but I suspect this is some sort of red flag?