The other potential issue is what if they aren't satisfied with the final product.  

If you decide to invest in these areas I would suggest that you do the same renovation that would be done in a good area, but with a lesser expensive products ( instead of hardwood we use strip vinyl with wood pattern).

Because you are selling a service based product.

People like to think of themselves as being productive by looking for funding.

Different loan products have different criteria, some are more stringent than others - there are some loans you can't get if there is no furnace in place, if the kitchen is incomplete- that kind of thing.

Those are all valid points, and polite disagreement is generally productive disagreement!

I bet you will be buying a house in no time once you start working with a lender that is able to offer a variety of loan products and outline the steps you need to take.

They declined and said it's not "industry standard" and they won't pay more until after work has been completed....Are we about to get scammed here?

You might consider the buyers I spoke about as the power source for the wholesaler's activities.Gurus sell a product about real  estate, they aren't buying or selling real  estate, they devise systems that pull the fuses out of the circuitry and replace them with a penny.

Whether your solution is going through the secondary market or a commercial loan... they typically offer both of these products in house at competitive rates.