Very common, everyday product.

Do I need to adjust my expectations of what kind of profit I want for the risk, or am I just way overestimating my costs?

As far as water goes, wells are common here and easy to dig.With hundreds of possible home sites and for the interested developer, this is an opportunity to get in on the ground floor of a serious boom.

What kind of return does it take to get you out of the comfort of SoCal? 

When you are new you won't have any idea what kind of deals you can find until you evaluate at least several in a given market.

Interest and vacancy rates continue to remain low (for now) and the common perception seems to be that virtually anyone with some spare cash (or a self directed IRA) can fix, flip, reposition, rehab, swap, wholesale, lease to purchase, buy/hold, etc.

Conversely, what kind of terms would persuade a private lender to put up the 15-25% in exchange for second lien?

Many people take a common route of naturally starting out with either SFH or residential MFH and then gradually moving into larger properties.

Now if you and the LLC purchased the property as tenants in common (LLC 75% and you as 25%) then you would be living in a piece of real estate that you own and when it sold you could indeed take the portion that you owned and lived in tax free once you could establish that you had lived in the property fro 2 out of the previous 5 years prior to sale.

What kind of insurance should they have ?