This is what I think I know:- The borrower can choose to pay off the note at any time (by selling the property or just paying off the loan with other funds), so it is important that the legal balance covers my investment and some profit- The borrower could file bankruptcy (can someone confirm that this will only cause delay, but not jeopardize ultimately collecting the legal balance of the note)- Most of these DOTs will have a rent assignment clause, so I could try to enforce that and collect rents from tenants (essentially manage the property) while I am holding the note and trying to foreclose.

You can do a 12 month cash out bridge which will pay off your old loan and get you funds to do the rehab as long it appraises high enough

Using your own funds to pay down your loan so you get a bigger loan sounds like a zero sum gain (aka IE using 1 dollar to pay down loan so you can net 1 more dollar from the new proposed loan) So how are you going to net more cash when spending 1 dollar to get another 1 dollar ?

Remember its an Investment Fund.

LOC on business purpose doesn't really make sense from a lenders perspective.Think about it, you have to tie up funds and not earn a return until the borrower wants to use them.Time is money and if your lending money you want a return each day your money is out.I'd strongly recommend just going with a cash out refinance and avoid spinning wheels looking for a LOC. 

Aiming for each part of the business to eventually fund itself is a solid plan, and a real estate CPA or attorney could help fine-tune everything for taxes and structure.

If you plan to live in this home for a few years:Look at the time it takes to recoup your funds.

I have an occupied rental i am trying to off to fund a renovation if anyone is interested-1072 bellows!

They collect the rent, deduct their fee and any other expenses they are allowed/required to pay on your behalf, then they distribute the remaining funds to you.It's critical that you review the property management agreement and understand what you agreed to.

You have the right things to analyze here, but STR might be a tall order to do arbitrage unless you have the funds to go heavy on the furnishings.