I did a quick research and it seems many people are doing it and there isn't anything wrong ethically or legally, so is there something wrong in subletting for profits that I'm missing?

It is no one's fault but the experienced rehabber realizes this is likely and has addition funds set aside (and additional margin) for the associated additional effort.In summary there is no argument for thinking the realtor's rehab estimate is likely to be more accurate than the contractor's estimate. 

To be most profitable, know that you shouldn't stay at your property during those times.The easiest route for you would to buy a Condo-Hotel.

But even then, I know I would not be able to refi out enough to get a HML repaid, so I would have to flip the property and the final profit out is 12k, minus the points + interest paid to HML and the cost to sell.

The occupancy rates will increase some as some people book last minute but using occupancy at near start of month has some safety margin built in.What this snapshot does not make clear is whether there is significant variation by month.

Is it typical for larger homes to  command a higher LTV(80-85%)  from cash buyers since the potential profit is larger dollar wise?

They have an advantage because they have the labor pool and the systems & connections to achieve economy of scale and efficiency so they can make a profit. 

I just wrote this article a couple weeks ago...maybe it gives you some things to consider along the way-https://www.biggerpockets.com/renewsblog/considera...More specifically on the numbers, calculate what you'd be profiting (don't forget to subtract mortgage interest and property taxes and all that) and compare that to what you would pay in rent. 

I don't consider the place an investment, it's my home and while I intend to rent rooms out (and can possibly profit from that if I'm lucky) I am happy to pay the whole mortgage and utilities myself and live alone. 

You may not want the liability/headaches that come with being a landlord so rentals may be out of your interest whereas if you are just trying to maximize profits and earn cash in the short-term, selling & flipping could be more your speed.