The mortgage company doesn't care as long as their lein gets paid off correctly, as it should if you are using a reputable title company.The 1031 exchange is a totally different issue. 

The asking price for the home is 132k.OPTION 1 – Cash After Repair Value = $132,000 (estimate)Discount 80% of ARV = $ -26,400Repairs (Price per square foot) 1,190 x $5 = $ - 5,950Cash Price (seller pays closing cost) = $99,650OPTION 2 – Sandwich Lease Option – “Perfect Tenant Program” Term: Minimum 5 yearsOption Price (buyer pays closing cost): 125,500Option Consideration (non-refundable fee we pay you): + $500Monthly Rent: $950 (profit + $100 cash flow per month)Total profit (If completed full term): $132,000Note: We are the tenant-buyer, but we will sub-lease the house to another tenant-buyer.

For instance, if I acquire a property worth $500,000 and it looks like it can cashflow at $250/month, my initial total investment would be $0.

There are plenty of creative ways to fund a deal - many are legal and totally fine, but as a realtor you need to be kind of careful about how you get creative. 

Some people have leap frogged total posts past me but I focus on quality of each post. 

I took one on my primary residence, paid no origination fees, and make no payments on it unless I use it, and only pay $70/yr maintenance fee, so if I never touch it over the life of the HELOC (10 years) I'm only out a total $700 in 10 years, which I think is reasonable for the access to the cash.

Agency debt is also not going to be possible under $1M (as pointed out by @Mark Allen).Best bet: Either find additional capital partners, tap into bridge loans for short-term financing (while you sort out your liquidity position) or pass on this deal. 

I factored in realtor fees at 8% so the 30k would be the total gain. 

The cash #s are not as attractive in DFW but one must look at total returns which are composed of cash + capital appreciation.

If the total cost of your project is $400k, then the down payment on a construction loan should be 25% = $100k.