While college students may not seem the brightest in their decision making, do remember that many of them have parents that are paying cash for the $40-80k a year in expenses.  

After missing out on real estate deals these past years(since 2013) and not being able to find a rental property in my neighborhood for the last 6 months, I've decided to fund a studio attached home in my parents house.

Yes, many times and most have usually worked out.My parents felt the rentals they had were an extension of their gift back and their goal was offering people with hard lives a way to be more self sufficient, on top of gifting to their church.

My parents own a few rental properties that are paid off and we are interested in taking out a HELOC on one of their properties and using it to fund the down payment on my deal.

going up and down from parents to kids can disqualify the account. going Horizontal to brothers and sisters is ok. 

Does not appear you are doing so given your post above, but please keep in mind that parents and kids are disqualified persons when it comes to qualified funds. 

My parents have a home in the Poconos that was worth $200-220k before the recession, and is now at around $140-150k.

My husband and I are managing our own multi unit properties and multi unit properties owned by his parents.

Me and my parents have set up an agreement that as long as I excel academically my expenses in school will be taken care of.

Additionally, my parents quickly approaching retirement is fueling my desire to generate passive income for them.