No, you're still underwater and drowning if your intention was to have an asset that performs for you and pays for itself so you can have income forever from it later.

The fact that he is requesting this "fee" before being funded is an immediate RED FLAG.Pay him up front and you can kiss your money goodbye.Private lenders should understand your intention when taking on a project, and their role supplying the funds as well as receiving their interest payments.

I purchased this home 5 years back with the intention of completely remodeling it and moving in.  

I will second to say this is common practice.The intent of this part of the contract is for your Liability insurance to respond any slip and fall claim on your property, not the PM's Liability insurance. 

But unfortunately a 1031 exchange is only available on property you have purchased with the intent of holding for productive use. 

Also worth noting not only does your agent need to know your intentions of investing but those intentions need to be communicated with your lending and title officers.

I would let them know of my intentions, "hey, I'm test marketing this concept, I just wanna get it right..."

@Syed Lateef Are you moving ahead with STR in Miami and is that your intent in Dallas and Austin?

Another thing i'll say is that this approach really only applies to land that is already zoned for the use that you intend to use it for. it's a whole different game if you are buying tracts of land with the intent to rezone and create more density or different uses.

That was the intent of my original question.