Its easy to lose track of how much one SHOULD have in the bank because its hard to leave money sitting and not working for you.I understand there are many variables such as age of house, age of roof, age of furnace, etc. 

I would look for commercial loans at local banks.

I think this could be a great thing because we could get magnificent properties for pennies on the dollar, all while the people get to keep their credit, and the banks gets their money.

Should I let the bank know that is where I plan on obtaining funds for my down payment or should I go ahead and pull out the amount and put in my bank account before applying for financing ?

As a disclosure the landlord/tenants laws are different from state to state and in different jurisdictions so you may want to speak with a local real estate attorney as well. 

., from a "professional lender" that is not a bank: Rates will be higher and less flexibility than with "private money."

I use this to make them upload a DL, paystub, and bank statement. 

It would be best if he calls the city and asks them to turn it in (although it is already on) in order to establish service for 2 reasons: (1) He's going to need to have the water on for the when the property gets inspected (banks won't loan unless everything is proven to be working) and (2) Right now the city could charge him with theft of water by turning the water back on himself (well, really the contractor did it but the city does not care). 

If the contractor doesnt do this he will hear " I am waiting on my draw "  " I will catch up to you on friday "  " I am having having problems with my bank "   etc etc . 

Let me know if either of those two are booked and I can dredge my memory banks for some other good folks!