Some sponsors define it such that every distribution made, including that of preferred return and surplus profits during the hold period, count as return OF capital. 

That money (as well as surplus from my W2 job as an engineer) would be used to pay him back personally until I cover my half of the down payment.

I recently got a quote from CBIZ vacation rental program and for my property in MA it's about the same price($2,600) You are going surplus which I'm not a fan of as claims service can be lower.

I believe if they had a surplus of owned properties, they would sell plenty of them in bulk, off-market deals to institutional investors that will rent them out.

The bank will either pay the taxes, or they know they can just collect the surplus funds from the auction after all you bidders run up the price.  

Heeby’s Surplus is one place you may want to check out. 

- How are surplus materials handled?

If you are making 10s of thousand per deal, at some point you have enough cash surplus to start doing your own deals!

My assumption is that any market with a 'Surplus' will not only have good deals in the present, but will become more desirable in the future.

In my area Surplus Warehouse has a decent selection of all wood cabinets that are pretty good quality, so that is where I usually go.