my thoughts are that as long as you have the cash or can get financing to fund the soft costs and hard construction costs then i think you would turn a profit. as you said, your betting on avg house cost, hopefully you've done due diligence to check that but ultimately if that area is in a housing shortage then I think the market will eventually meet or exceed 

You are correct, anything below 750 sqft will be your best bet.

Would above arrangement be better or worse tax wise versus treating as a business and depreciating?

I am a firm believer that if you are investing in real estate directly, versus a passive model, you need to be doing site visits regularly, and being somewhere you want to go, especially if this is a side hustle, makes it that much easier.I do agree with @Derek Harris that, why not invest in both, if possible. 

I thought I understood the concepts, but when I read this blog by David Greene and another on Bigger Pockets versus what other websites tell me, I got confused.

ConclusionNo matter what your goal, whether selling quick or selling for maximum value, listing in March seems to be the best bet.

We decided that this would be a good route for us after listening to the podcast (show 364) with Avery Carl, where she points out that you only need 10% down for Second Home loans versus at least 25% down for Investment Property Loans.However, we started talking to a mortgage lender, and they indicated that we would be required to obtain an investment loan if there is any rental income whatsoever, regardless of whether or not we self-manage via AirBnB/VRBO and meet all of the other Fannie Mae requirements for Second Homes.

That's why we, and I'll bet you as well, will never wire funds anywhere at any time without a contract for purchase in our files to serve as an identification. 

In fact, after all the time, effort & money you'll have into it, I'd bet on you having a hard time letting it go.

A title company would be best bet to go through or you can call the country to find liens.the county does have a few sites that are useful in researching properties. country recorder (you can search for liens here, but if they are very recent they may not show)http://www.lcrecorder.com/reco...you can also call or email the recorder, contact info is here:https://www.lakecountyin.org/p...there is also the assessor site:http://counties.xsoftin.com/la...