We also aren't sure whether it's best to openly discuss this with our lender because we don't want them to invoke the due-on-sale clause, as we have technically transferred ownership of a portion of our property to our children.

Yeah mate,Too much outside influences and logistical issues with new construction.It's much easier/less risky when you control as much of the process as possible and don't need approval from anyone for "this or that".New build works in other markets but why would anyone new build in 43612, 43613 or 43623 for example when they can buy dirt cheap and renovate for much much less than new build.Just my opinion and there are many ways to skin a cat when it comes to real estate investing 

Goals is adding an ADU when remodeling a distressed SFH, but so far none of properties we completed worked for it (zone issues, lot size, garage storage > ADU value). 

Should I include security deposits I've received and then forward to my owners in the 1099 I issue them? 

Of course, there are potential issues like alligators, higher flood insurance premium, erosion.

The main issue is that rental rates on the new construction make it challenging to cash flow much, if any, in the first 3 years. 

Bikes from a bike shop will be more expensive but they will be assembled correctly and will have fewer issues.  

I've had many discussions about this same issue.

So the biggest issue will be the services.If you offer significant services, according to the IRS, then you will change your taxable situation.

The expectations are they pay on time and treat my unit right and their expectations of me are I address issues in a timely manner, give them a great place to live and treat them with respect.