You're essentially taking a 10-20% loss on day one. 

(We could frame those ideas in positive language as desire for safety vs desire for a goal.)  

25% for flood when creek rises, fire, non paying tenant, roof repairs, tree falls on duplex and insurance deductible is $2500, tenant puts toy down toilet and clogs main line, dog which you did not allow bites someone, disposal stops working, property manager 10%, property taxes increase because they see you did rehab or you changed the title, noise fine as tenant decides to become a drummer, trash bill, ants or vermin and you have to hire a exterminator, mold claim, planning department inspection fail, city fee as business, legal fees, CPA fees, insurance goes up, Imperial Beach business license and landlord permit/ annual fire safety inspection/gas co inspection $1500+, heaven forbit the Coastal Commission says you dumped foul water, to name a few

Wouldn't you assume that it would be MUCH less than that considering we are getting all the construction loans and essentially carrying the risk?

There are no shortage of lipsticked pig properties out there, and learning to spot them is essential for successful RE investing...we're all susceptible to "shiny object syndrome", but being aware of it is the first step to avoiding it!

Because, house hacking can produce great financial returns, it teaches you essential RE investing skills, but (compared to more advanced strategies like BRRR'ing or wholesaling), it is comparatively lower risk, simple and beginner-friendly (and therefore has the highest likelihood of success).More specifically:1.

To me, walking the neighborhood and meeting a tenant are an essential part of the underwriting process.The seller was very forthcoming throughout and had been operating a solid business.

So the special key still remains usable on their deadbolt, but essentially we just made it a 'smart' lock?

There is a little more red tape for FHA loans around safety related aspects like chipping paint, broken windows, etc., but a great choice to jump into the game!

Essentially goals are what you need to define first, then find the strategy that can help you accomplish those.