Does the city have any restrictions on drilling? 

Since I utilized a VA loan and considering the restrictions in Texas, is there anyway to take advantage of the equity I have in the home?

1) Value of property declines; 2) Cash flow of property declines; 3) Your personal credit deteriorates; 4) Interest rates go up; 5) Current lender gets bought out; 6) Current lender has portfolio restrictions; 7) Your buddy the loan officer is no longer there.  

Fannie and Freddie have other programs like Home Possible where you can get in for 5% down (based on location and income restrictions).

@Steve Vaughan Great insight, per usual ;) Are there restrictions to deed types used to transfer?...

I would also check to see if there are any deed restrictions...there may be something weird the builder inserted about this issue...Aside from that you could make a pitch to buy their property then bulldoze it ;) We're actually going through something similar with a rural project...Good luck! 

And even in the areas where you can, HOAs generally restrict STR.

The numbers work so much better if I just borrow the down payment and rehab but Im unsure if there are any restrictions against that or any issues the bank may have

@Craig HeckmanForming a partnership LLC owned by two IRA accounts becomes considerably more complex and restrictive than a single-member IRA LLC. 

The only restriction on the new building would be 1/3 has to be affordable housing.