As a first time investor, these favorable terms raised a red flag. 

Local zoning and land use regulations will determine that....start with the building and zoning dept, or whatever it is called there.

It's not true if the house is still a construction zone in any way.The answer to your question is VERY different if you've had the property in service already, pulled it out of service temporarily to do upgrades and then put it back into service.In that case, you'd have issues surrounding De Minimums Safe Harbor, where you have a lot more leniency in what you can write off right away vs what must be depreciated.

If it changes to red, it's lead. 

I am working with clients in San Diego and Florida and I need to hire the equivalent of a Town Planner (Australian professional) who will work with the client and walk them through the subdivision, zoning, code, property appraisal, residential building options, etc.

Everything from the permitting process with city planning and zoning to building materials selection to self performing most of the hands on work myself (with help from experienced friends and contractors).

How is this not a huge red flag?  

If your creating a separate unit in the basement check the zoning to make sure that’s allowed.

Can you house hack in an autonomous zone?

@Luke Rorech, I was originally looking at STR, but legality/zoning seems to be wildly different from area to area, even within the same municipalities and then again within HOAs.