If it's a mechanic shop and you're looking to change the use you're going to have to spend some money and you could even run into environmental issues.

They should probably add back the components of your mortgage payment and deprecation on your schedule E and deduct the full amount of your mortgage payment as a starting point.That being said based on the way you described it it sounds like they are double counting your mortgage interest in the ratio.  

I would look at a bridge if we cannot get the traditional financing and/or…if there is a large rehab component and we want a bridge for 12-24 months and once we rehab and stabilize, the plan would be to move to perm. financing.

I would guess it was not "down to the studs".It sounds like this guy bought the property with cash for rehab.Turned into a money pit for him and values went down and now he instead of rehabbing it is looking for a sucker to unload it on.Namon you are just way,way off in your calculations.You need to go to the stores Home Depot,Lowe's,etc. and get acquainted with an idea of what things cost.You would be amazed how all the little things add up.The labor component is key as well.Do it yourself (free labor but a cost of time).If you have never done it before you can screw up and waste time and materials eating away any potential labor savings.You can also use a handyman for work OR a certified contractor.They each will have their own rates what they charge for labor.

With so many more environmental regulations in the world could this affect the property and your wallet down the road?

Price is the single most important component to selling quickly.

One component in the report will show the house performing as a rental with a loan (hard money).

Because we have so many deals that are coming down the pipeline, and because a very small percentage of deals make it through the strict criteria we have, and even fewer go to sale, we can't get a full report for each property we're researching.Are there any online resources for historical environmental issues with properties or any possibly hazardous additions like new underground tanks etc?

If a property has environmental issues, like crack and meth in the walls, the powers that be generally file a notice along with the clean up order nailed to the building, which can be removed.

(Try to land many tenants in one place so if one gives you a problem you are still paying the mortgage)Also helps to control economy of scale.Downside is the building is so small many owners are still engaged as the PM.4.Larger buildings in low income areas with value add component.