Basically, you are taking a lot of risk and have limited upside.  

Your income isn't high enough for it to make sense as a rental and the closer you get to your residence limit the greater pressure you will have to sell it before losing your exclusion in whole or part. 500k right now can make $15k per year income with zero maintenance or tenant risks. 

Take your time, be wise, and time will reward you. agree 100%. you have people here on BP who have been in real estate for 20+ years and always talk about the risk and how hard it is - and then you have people who will tell you that after a weekend of a month you can make six figures in real estate. 

So while there is always risk in this area - i don't know. 

However, they can sometimes be higher due to the additional risk taken on by the lender.With a hard money loan, you typically make interest-only payments during the loan term.No, you wouldn't owe any more interest beyond what has already accrued if you finish the project in 3 months and pay off the hard money loan earlyIt's great that you're exploring different strategies for your real estate investments!

Margins seem low and the risk seems high.

However, what if you prefer simplicity, limited risk, and are living off of the income? 

Obviously, with any investment, if there is more risk, there is more reward. 

It looks like a great idea on the surface but the numbers don't stack up from a risk/return point of view as far as I'm concerned (it could be different for you depending on your return expectations).

This is the “over night” success that’s taken 20 years.2 - Superior uncommon knowledge, combined with experience and capital and a willingness to take a risk (speculate).