My experience is that Sch C in these scenarios is reserved for hosts who do provide substantial services in connection with the property, to include but not be limited to, linen cleaning, maid service, B&B type services, etc. 

We messaged multiple times that we would start construction soon and confirmed they wouldn't  move back for a few week.

@Edisson Casseus generally, a hard money lender will need 10% - 20% of the purchase price, plus whatever points they charge, and money to start the renovations (realistically, 25% of the reno costs), and a reserve for loan repayment.

I'd be tempted to bring in my own inspector to confirm the correctness of the work.

That's not including any reserves, that's simply projected rent minus my PITI.

Do we need to save up cash reserves first or as we go?

The same goes for CapEx reserves.  

@Charlie MacPherson Thanks for confirming what my gut was already telling me!

We did not meet their reserve price so I thought that was my out, but Auction.com said they will still submit the bid to the seller if you are within a certain range, which I was (fabulous).

Hello, do you separate your cash flow into a separate account from your reserves for repairs, cap ex etc?