While I will not have to pay HOA every month, this is slightly concerning as there are no reserve funds for maintaining the structure of the townhouses, external painting, etc.Is is common to have no HOA?

Those can be the best kind because someone else paid for the exiting build out, training employees and weeding through the duds, stabilizing and creating a history of sales over time you can track,etc.Those businesses have already created multi-generational customers from the grandfather,father,and son to eat there.Great business opportunity is generally where the owner is wanting to retire, has to relocate, health problems, partnership split, divorce causes division of assets, bankruptcy sale, etc.You want the business to throw off great cash flow on it's own and be established but get the discount because of external operator issues.

Balance paid in full with internal or external refinancing or B.)

That sort of begs the question, is it really an external market influence - sellers asking for more money or is it an internal market influence - your model doesn't price that asset/segment/population as well as it use to with experience under your belt?

Almost 20 years ago on a new construct I lost nearly 6 figures due to a "perfect storm" of overbuilding, inadequate local market knowledge, internal and external forces (building for myself, not considering the effect of a huge subdivision dump, etc).

No matter what they recommend, get feedback from an external source on whether that makes sense for your situation.

While it is entirely possible someone can end up with no money and bad credit due to external forces (medical, loss of job, etc.), it is much more likely that inability to control spending and disregard for the sanctity of credit payment promises is the reason for their predicament.  

Currently we are interested in a 3-unit property that requires an external fire escape to be built in order to make it code compliant.

Your intent was to hold and an external force is changing that intent. 

This is best done externally ... which also happens to be the most expensive option.