Second, if you look in other markets be sure to look into the long-term stability aspects of the city, the total number of units in the city, compare that to the total number of SFR.

Somehow I already bought 3 properties in Hartford (8 units in total).

Property A - listed at $229k and in contract at $225k - solid deal with loan $169,000 and total down payment is $56k ($28k comes from each of our separate 1031 exchange fund)We are both in the loan and title for property A and B per QI instruction.Property B - listed at $275k - missed the opportunity - backup offer at $265k) (almost no chance to purchase it)What happens if we can not purchase property B?

This is just the latest in an arduous process, to find the deal under market value on the land, rezone it to multifamily district (long and costly process), permit a six suite rental (difficult with many technical fire code and structural engineering challenges), build the units (using all my experience in home building and every possible favour and technique learned over the years to project manage), get financing to finish construction (from a private lender after the bank lenders totally dried up on this type of financing), and pre lease the units while under construction to quality tenants.  

Let’s say the lender provides the borrower with the options below for a $500K loan. 9.99% and 1% $4,162.50/month and $5,000 upfront 10.99% and 0.5% $4,579.17/month and $2,500 upfront 11.99% and 0% $4,995.83/month and $0 upfront See the breakdown of the total fees the borrower would pay in the table below.

I totally disagree with several of the points you tried to make.

The subfloor main level was unusable and It was sight unseen....total gut job $100k rehab.

What potential pitfalls could arise in this type of business model (other than check your local and state ordinances, thats obvious)Any advice would be very helpful. 

Nat, that's bizarre at best and totally incongruent with expectation.    

Found out from the town that 20% of the total square footage can be used for the home.