I want to raze the existing structure, subdivide the property into 2, and build a new duplex, which has been done to numerous properties in the neighborhood.

Financially I don't think my debt to income ratio would be low enough to support both being my residence and not a rental property.

I would of course check with your CPA and Attorney's but to my knowledge, a 1031 cannot be used to purchase a primary residence.I have helped numerous clients in your exact situation where the question of whether to sell or keep, or flip comes into play, and it typically comes down to where is your money going the furthest! 

Nevertheless I've accepted numerous deed-in-lieu where I knew there was an underlying lien.

I suggest comparing markets and see which market supports your goals better and investing there.

After seeing everyone's opinion I went back to educating myself more and spoke with numerous people that know more about real estate than me. 

Banks can do this because they have millions out and they support the community but private for profit small lenders no way they can do these and keep the rates the same as when they are doing 300k loans at 2 pionts and bringing in 6k in fee's plus junk fees.. its the exact same time effort and paper work to do a 50k loan as a 300k loan or a 1 mil loan. or a 15k loan.  

---So, insist on them providing the rental application and supporting docs for your review.

If you are looking to sell to the end investor make sure you can defend and provide data to support your evaluations. 

Numerous issues here.1) You state you wrote off property improvements as expenses.