It’s your first deal so maybe you won’t be motivated to do this but having the seller bring equity in form of the land, a developer/investor interested in the area and carries the construction financing, you really only bring them together (whatever that is worth to an investor) or some sort of partnership with the seller that outlines duties and recompense.

The main thing is finding someone who will give you some sort of prequalification so you can provide it to sellers when you make offers.

@Catherine Morel I sort of did....they required an upfront fee for a proof of funds...$250. then when it came to a deal they said no...That was my experience

But, if you don't have experience in those sorts of neighborhoods, and even moreso, you don't have life experience with the socio-economic type of people who would be your tenants, that's your answer. 

I was more so trying to find a program of sorts that give good pointers for things to look out for while demoing a home.

I'd love to get some thoughts from investors who have experience with larger multi family properties, as I have none.

Then 1031 exchange for a larger multi family property.Although I agree with your calculations to produce the offer price.  

I am living in the larger house and renting the smaller cottage.

My point was that your experience supports my observation in the sense that I think they are trying to be "market makers" and sort of control prices. 

Since I'm technically borrowing 100% of the purchase price by taking the down payment from the HELOC (rather than the 75% loan against the subject property) I guess I could indicate 0% downpayment and create some sort of blended rate that represents the new 1st mortgage against the rental property and HELOC payment.