Check with your lender what your new payment would be on the existing and what that would allow you to afford on your next purchase.You can still do an owner-occupied loan up to 4 units but if you're using your FHA/VA loan you'll have to go conventional 5-10% down. 

Also, you don't say where you are, but many states do not allow you to do 'Owner/Builder' work on your investment properties, just on your own personal residence....

The only problem I see is these loans are not made for owner occupied.

A great book I gift to new RE investors is Profit First by Mike Michalowicz and it goes into detail about what types of accounts to open as a business owner. 

Does the owner/operator have any experience with land development?

The owner ended up selling it as-is because of the long process. 

Once you have the establishment of the 2 year owner occupancy that's help you to cover the capital gains portion.

Good point, yes a house hack would be more of an owner-occupied loan with a lower downpayment instead of a DCSR loan.

I've made contact with the land owner and they are now asking what we are willing to pay.

The interest will be higher than a HELOC on an owner occupied residence.