I’ve talked to lenders about rehab loans and they sound extremely tedious and most contractors shy away from all the extra hoops one has to jump through to satisfy rehab loan terms. 

If you're going to be using the property as an Air BNB or other vacation rental, that means you need quality, durable furnishings, staged to make guests want to book your place, and (maybe) someone who can be responsible for turnover cleanup.

And THEN once I find a home that satisfy my needs - then I house hack it.Now, I have seen people say something like "I only want to purchase a quad that cashflows"...and all the 4 unit properties in their area are $1million+...and none of them cashflow. 

Is this stuff really a lot better (durability-wise) than carpet?

.- Bought it on line at auction - used hard money to satisfy the mortgage.- Took months to pay off because i had to track down the relatives of the deceased to get their consent.- Had the unit under contract for sale- pre-sale inspection found moisture in the wall.- needed to get out of the hard money and refinance with a bank.- couldn't refinance because there was an issue with the documents the daughters of the deceased signed- had to reach back out to them again.- refinanced the property with a bank.

The downside is you will need to live there, for a minimum of one year (to satisfy FHA Requirements); AND because you closed personally, you will not have Asset Protection, in the form of closing in the name of a LLC.

Use the 1031 for the main house and you live in the ADU for a while until you have satisfied your intent. 

I am finding it hard to locate deals that satisfy the 1% rule. 

Find someone who's been satisfied with their lender and start from there.

Or, maybe they will have a valid point or two to make, and you may realize your expectations need to be adjusted as well, or you may be able to satisfy their valid points with some upgrades worthy of the rent you are desiring.