I want to figure out what I've done incorrectly. 

If I am incorrect, it would be awesome to know as I can obviously save myself $85K in raising my house. 

@Bryan Mitchell@Michael NotoAfter reading the article, I think the statement - "If financing is planned, then Cap Rate cannot be used as an estimate of value." is incorrect or a  typo.

Please let me know if I have done this incorrectly or if I have left anything out.                                                                                                                                                                       

Note I did not say it was incorrect, I said it is not the perfect option.

The second example will present incorrectly if using excel function because the first years investment will be discounted, presenting a higher IRR.

You may not need tons of cash, but the idea of being flat broke and being able to make something outta nothing is just incorrect.

There have been multiple times now that I received a closing statement with incorrect numbers.

You also gave an incorrect calculation for a cap rate.

Keep in mind that most contractors will have a solution that worked on 4 previous houses but every inspector is different and they all have their quirks.