Historically, the standard fundamental was that your going-in cap rate should be higher than LONG TERM, FIXED rate interest.  

But you'd always want to talk to the city right away (or county) and find out the development standards for the zoning that the lot is in (what are the setbacks, height limit, min lot size, etc).

Here are standard terms as of today:2 points10.49% - 12% rates75% - 90% LTC100% rehab included up to 75% of ARV

There has never been a standard commission of course (anti-trust laws), but now it is a very different time than it was the last few years!

It is very hard to generate money with sub-standard real estate in the long run, capex tends to exceed cash flow and you are not creating meaningful equity either.As long as your properties are financed cash flow will be maybe not nothing, but indeed be quite limited.

Additionally, for rate-term refinances, many DSCR lenders have no seasoning requirements at all.Easier qualification: DSCR lenders have much lighter qualification requirements than conventional or portfolio lenders, such as no DTI, income verification, or tax return hurdles that can slow down or disqualify loansFlexibility: While conventional and bank lenders are heavily regulated and follow standardized rules, DSCR lenders have much more flexibility and control over their guidelines.

Respectfully,Zach The best bet is likely to create a new LLC that lays things out in a straightforward but legally strong and standard operating agreement, etc. - LLC doc sets are fairly cheap and easy to create these days (with limited assistance from lawyers) and its much much better to have that cover bases on arrangements like this - it will also fit nicely with financing options - whether you take on debt from a lender in a co-equity situation like your first plan (refinance loan to LLC post rehab?)

. - unless you get some whacko judge, there should not be any issue collecting rent on unpermittted unit, having a move-out cost (no fault eviction) in excess of the standard rent control or eviction process in excess of standard rent control hurdles.    

Not 1 time has a standard rental poo-decorated a unit, not 1 time have I had dead bodies at a standard rental. 

A standard 4plex sells for $1M but rents for $4800 with a $6k+ mortgage.