(electrical, plumbing,roof,etc.).Option 2:New home house purchase in B+ area with brand new subdivision. 225,000225,000 you put 50,000 down instead of 15,000 for option 1.225,000 house gets 100 a month in rents surplus.

Meaning if closing costs are only 2% and you have a surplus of 4%, that extra concession can not be put toward the down payment. 

You can always apply any surplus income, after you account for the other expenses, to the principal.

Additionally, I took him to some surplus stores to save money on materials ( which totalled under 2k).

Then I agree with Greg, what's the urgency to pay out a low interest loan, when all the surplus money burning a hole in your pocket each month could be put to better investing use? 

My guess is that you can find an Excess (aka Surplus) lines carrier for the Vacant building and the Liability.  

Why is there a $15K surplus? 

Think of it as salvation army for construction materials, many items are new/surplus from contractors who donate for the tax write-off.

Just go to the town/city you want to invest in and ask the Town Clerk if the town has any tax owned or surplus properties for sale.However, you will generally need to pay cash for the properties.

If the regular market will not cover it, have your agent check in the Excess/Surplus lines.