He didn't have much downside in terms of potential losses, and I could be somewhat passive and protected legally (he owned the building site etc. and took care of liability). 

Laws are now passed that prevent you from renting to yourself and claiming all the losses.

All Contractors are subject to the lender’s determination that the contractors are qualified and experienced, have all appropriate credentials required by the state, are financially able to perform the duties necessary to complete the renovation work in a timely manner, and agree to indemnify the borrower for all property losses or damages caused by its employees or subcontractors.Multiple Specialized Contractors:Ø Since this is a limited repair/renovation program, no General Contractor is required.

Their loss is our gain.

I am truly at a loss for words here. 

The agent will have access to the biggest platform to get the property sold though, the MLS, so forgoing even a cut rate agent will create more of a loss than the agent fees themselves. 

In this case, am I still able to count the inspection fee as a capital loss, even though this expense occurred before I rented out my first property?

If you want 100% of your investments in public equity, that is fine and you will reap those rewards or suffer those losses.  

I believe it tends to give me a slightly lower return, because the sponsor is going to be more careful, and if there is a severe downturn will prevent me from taking catastrophic losses.

If it is block construction the engineers will make you beef up the slab and add piles to support the new weight of the second floor.