Creative ways to fix up 1031 replacement prop prior to closing?

[Alan Brown]

Hey Y'all,  Im purchasing in a market that is quickly getting away from the 1% rule, and the only way I"m finding to get the cash on cash return I'm looking for is by buying slightly (or more than slightly) distressed properties.  But if I have to use my cash from the 1031 exchange to do some upgrading, it quickly eats into my c on c return!    So.  I'm thinking I could use hard money for the fix up,  then possibly raising the purchase price to cover expenses, and do my normal financing, (25% down) at closing, paying off that debt at closing out of financing, as the Seller would have to normally if they had used debt for fix up. 

That's if i can get the Seller to agree to let me do substantial work prior to closing.  There's also the not insubstantial problem of sinking money into someone else's property and risking them defaulting (not closing) on their newly sweet units.  

I know it sounds crazy risky... but it feels like it should be doable somehow or other.  

Any great ideas?