Since septic systems are rated by bedrooms, there should be no capacity issue that you would run into.  

I left out the important details about how much work the house needs: new windows, roof, no AC, not even a fume hood in the kitchen, sometimes mold issues in the basement, broken windows, landscaping. we basically self manage which is at times frustrating.

Overseas you have currency exchange rates timing and other issues.

Credit and down payment are not an issue and I am pre-approved for financing.)

I would bet that a recorded lien would cloud the title to the point that a title company would not issue title insurance on the property without a lien release. 

I don't need the cash flow so putting it towards the mortgage isn't an issue for me.

It can cause emotional distress.

This would include grass, tenant issues, possible handyman work, snow shoveling, etc.

However I'm having an issue with what addressto use for the rental unit.

., The issue you need to resolve to determine whether you can do 1031 on the construction is to first determine what your intent in buying/constructing the new home.