So, he instead is reducing his cash flow, mortgaging his paid off properties, acquiring more properties, and get more appreciation instead.

A construction lender may be willing to take out your current loan and use the home as additional collateral for the construction reducing or maybe even eliminating any cash needed for the development phase.

Ideally, you would have money for down payment in savings and use a HELOC to find the rehab to reduce your hard money costs.

Generally most people you speak with are going to provide you a quote with their "standard" commission built in and anything less would be them taking a reduced commission to win your business. 

@Dan Stelmach You can reduce your capital gains by writing off expenses like the $25K in improvements, closing costs, legal fees, and real estate commissions.

This reduces the rate of interest by 2% the first twelve payments and 1% payments 13 through 24.

I personally never hear stories of the turn key provider spending extra sound proofing between units or investing in better quality fixtures or other high touch building materials so that the end buyer can enjoy reduced maintenance costs and better tenant engagement.

Their capital exposure was reduced by 200%+.So now they own the house and work is being done. 

This gives him a chunk of money upfront to do with as he sees fit, ensures he gets steady income (with interest), and reduces his tax burden.

You ask them their challenge and there is typically an option that reduces the challenge.