In reality to be successful in real estate you need knowledge of real estate principles, real estate finance, real estate law, and real estate practices.

Are there any particular management practices or tools that have proven effective for rent-by-the-room setups?

100% financing is possible but not practical.

If you really want an answer you can confidently rely on you'll need to engage an attorney practicing in the state the property is located in and the state of residence of your grandparents and have him research the specific facts of the case.  

I'm looking for insights and best practices from fellow lenders and financial professionals on how to effectively manage borrower relationships.

How have they impacted your business practices and client interactions?

Those places practically give rooms away to get people on the gaming floors.

It's an important distinction to make.You're right that passing on legitimate increased costs to customers is a normal business practice.

Inflated ARV's and underestimated rehab costs are common practice with most wholesalers, much of which are newbies who have never flipped a home themselves.As another stated, there are other ways to land deals besides wholesalers so cast a wide net and use multiple avenues to funnel your leads.

Most of my clients that are doctors, typically will want to purchase real estate to not just yield the benefits of RE, but also for opening their own practice.