We in Phoenix, on the other hand, are greatly benefiting from people running from CA, another great socialist state :)ya not sure if the puzzle factory running this state really understands free market economics  but my Lobbyist I use just sent out an economic report that is very favorable for the state... so it appears that rentals are not a big driver if they can submarine them and the economy is still booming and strong I know its worked in our favor for new construction :) 

Cash for the purchase, construction loan for the rehab.What was the outcome?

I mean when we are done with our new construction homes the buyers always have a home inspector go through and there are always a few items.. that got missed .. you know cellulose in the crawl ( wood chips LOL).. reverse polarity.. chipped tile our folks out are way will even do a sewer scope.. and a radon test.. even though we have to put in radon pipes by code..

I'm trying for constructive feedback here...

For example, if I am the cash partner, I want the guy handling  flips to know what they are doing  and have a construction company behind their back.

Both of their run-up in prices are different.  03-09 lots of 100% finance loans, negative amortization loans, pure speculation, and low rents, lots of new construction. 

I would try to get permitting for 2-4 units if possible.2) New construction would run you about $165 sq/ft  in the area.Im looking at a new construction project for a 1300 sq ft sfh near 66th/westernif you need to tear down the existing structure may be more. 3) first steps is get architecture drawings, understand the utilities needed, then permitting.  

I have built and sold 38 new construction homes in the last 5 years but I have no desire to buy a distressed property and fix it up.

I'm not trying to pick apart your calculation but rather give you some constructive feedback. 

HUD yes section 8 yes  housing authorities run by cities yes.but who knows whats the jurisdiction what city and state.. maybe if you post those details someone can acutally answer you..right now with your post there are 50 states to choose from and a million cities need to narrow it down if you want any constructive feedback  :)