My initial idea is to try to handle it nicely, if he has another building that feels safer and not a ground floor, she would entertain looking at units there to not cause him financial harm. 

Any harm in offering even lower than $165k?

People and pets should be out of the house when painting with this re harmful fumes.Throwing Rocks: https://www.youtube.com/watch?

We don’t know any PMCs to recommend in the area mentioned, but since selecting the wrong PMC is usually more harmful than selecting a bad tenant, you might want to read our series about “How to Screen a PMC Better than a Tenant”:https://www.biggerpockets.com/member-blogs/3094/91877-how-to-screen-a-pmc-better-than-a-tenant-part-1-services-and-processesWe recommend you get management contracts from several PMCs and compare the services they cover and, more importantly, what they each DO NOT cover.

We don’t know any PMCs to recommend in the area mentioned, but since selecting the wrong PMC is usually more harmful than selecting a bad tenant, you might want to read our series about “How to Screen a PMC Better than a Tenant”:https://www.biggerpockets.com/member-blogs/3094/91877-how-to-screen-a-pmc-better-than-a-tenant-part-1-services-and-processesWe recommend you get management contracts from several PMCs and compare the services they cover and, more importantly, what they each DO NOT cover.

Substance over form would likely prevail.However if the leg work you did for the fee was performed in the US, it would be likely be US source personal service income subject to US tax and depending on the extent of these wholesaling activities, could be considered US trade or business income subject to tax.

The difference with Pit Bull is their strength, which gives them ability to do more harm.

If you let her know that she is going to be paying for the fix, every time there is an issue, she just won't report it which may cause harm for your property.

And if questioned would the Service accept the substance over form argument?  

The rising rates can cause some lenders potential harm if not managed correctly though, so this market fluctuation means it's even more important to underwrite the hard money lender that you invest with to make sure they aren't in a bad position.Good luck!