The bank orders an inspection at each draw that confirms the value of the project upto that draw.  

He was late, he showed up at the wrong HD location, even though we texted him the address and verbally confirmed it the day before, and then he mentioned lunch b4 we even loaded the supplies in HIS truck.

Plan for 10% vacancy, maintenance, higher taxes, insurance, cap ex to renovate, reserves, management fee 10%, utilities unless individual metered.

Great idea, just as long as the house would cash flow after the cash out refinance, ALL expenses are conservatively estimated, and you keep some cash reserves to handle any unexpected capex, vacancy, etc.

Someone told me you can't so I wanted to confirm it

Personally, I would think that free and clear (with cash reserves, of course) is the safer bet, but lower potential return.

When you say "legal apartment" I'm assuming you've already confirmed your able to change the zoning on your potential SFR into a duplex.  

Also, if there's anything need to be fix they still charge the investor when they already have maintenance fees reserved in the account.

You say you closed without seller completing items specified in the contract, but it sounds like you did not escrow any money to insure completion of repairs or get anything in writing that confirms they are still responsible for the repairs?  

Also the sites will often shill bid against you up to the reserve price.