I'm not sure if they still have that in this current rate environment but they do exist. 

Why does PM start promoting the property only after existing tenant moved out and property fixed (small repairs)?

Since you decided to change the contract by asking for a concession (which invalidates the existing contract), you will not be able to sue for specific performance. 

Instead of buying existing properties and rehabbing them, the idea is to partner with a builder who constructs new rental properties, then refinance and rent them out. 

Don't want to pay tax on selling the rentals I unfortunately don't think they actually want to utilize the 121 to sell their existing primary and then potentially buy another one-it sounds like the goal is to ultimately continue owing that initial home which I think makes this whole plan 5x more likely to be torn apart under audit because they're trying to end up with the same property they started with.  

Some other "adventures" I am looking at - the existing tenant is section 8 and the current property management company likely will not continue management. 

More effort should go into enforcing existing permitting laws and cracking down on unpermitted work rather than imposing costly regulations that push property owners into avoidance tactics.If the goal is to improve fire safety in Worcester’s aging multifamily housing stock, the best approach is to encourage full renovations that bring buildings up to modern safety standards—not to place additional financial burdens on responsible owners.

As a backup plan, if I have to go with a local PM company that only leases the entire home, could I use an addendum to add additional tenants to the existing lease while ensuring everything is legally structured?

It is usually difficult to take money against it from the bank, it might not be a 1:1 value add - meaning if you invest 100k into an adu it might not raise your value by 100kThat being said, it can be pretty lucrative especially in expensive and sunny CA - since building lots are no where to be found and existing real estate returns are very poor.My partner builds these units.

There has to be an existing reason.