Sarah, sounds like you are using an excellent avenue to generate some business for yourself, I think you are missing some critical components to help you get over the hump, you may already be aware, but I suggest the following (3) steps:1) Use an experienced 203k lender, not someone that has done (1) or (2) just google 203k lender for your immediate area, call (3) get best rate, listen to experience pick (1)2) Its all about value, in some cases you can go 110% of appraised value, giving you more money for your renovation if you need it, depends on your situation and market.

I would definitely look into this further before money leaves your pocket considering it could be a structural component of the house that's failing.  

I am concerned he will not sign off on anything without a environmental test. 

Do that analysis for every component of you property and you will see your long term costs are much higher than you think.

The water heater is a structural component.

If you're both REALTOR's, take it to your local/state board as a complaint or request for mediation (there is an ethical component to this that they could rule on), 2.)

This is based on the estimated value "icomps.com" gives the properties but when I run a comp on each of the houses based on #BD/BA, Sqft, Age, and sold dates the comps I get are not much different.My problem is this is my first real deal (although I have 2 other much simpler deals I am working one right now in my city) it complex in that some much work needs to be done and the low value of the properties.

These deals are in the Metro Charlotte area, and have value add components as well to force appreciation.             

I run a consulting business that makes my money but by nature has no passive to residual income component - thats a whole other discussion ;).

Everything you're talking about is absolutely a critical component.