If it doesn't work, put it up for sale when the lease ends. 

Even if you get a great deal that is 20% below market, appraisers will typically be anchored by the last sale price and you may be stuck not being able to pull out as much cash as you need to pay off the HELOC.

You will report worldwide income on your federal and Kansas tax returns.You will also include the MO activity on your KS return.Your MO return will only include the acitivity within that state, which in this case, is the rental property.In the future, if you have income in MO(either through the sale of the property or through rental income), you will pay tax to MO but KS will give you a credit for any taxes you pay to MO.best of luck

20 townhomes sounds like it would be sales, but I don't like to assume. 

Is his capital only paid back when there is a "capital" event like a sale or refinance?

Then connect with some hard money lenders (you can find some here on BP as well as some who are typing this right now) and connect with them to understand their product type, what they like to lend on and requirements.Hard money broker is all numbers game of making relationships and helping those that are looking for financing, it starts out slow but if you get with a few good borrowers and lenders it can be pretty decent money to be made.As an example we paid six figures last year to HM brokers. 

Is there any creative way to avoid/reduce capital gains tax on the sale ?

we have to have pre sales my bank will only give me a certain amount of spec loans but unlimited amount of pre sales. its the only way to keep velocity when you have a larger project like us ( 90 homes) We have been blessed no questions about it.. we made some critical decisions when we started that now look like genius moves :)

At the time, we were new to the market and, admittedly, didn’t conduct thorough due diligence before buying.We purchased a property in the Atlanta area, renovated it, and listed it for sale.

And since you are licensed, you can potentially do some sales on the side to increase income and save up for investing.