There are negatives and positives in any investment so yes in an appreciation standpoint you get less bang for your buck, but as you stated cash flow wise it amounts to more, be personally I believe in doing the mechanical leg work in the beginning so that there are fewer maintenance issues and the last part is choosing a good tenant that will take care of the place.Also, I am saying starting out and having these properties in the portfolio along with other vehicles of real estate.

You might be better off simply borrowing the money from them, as @Taylor L. mentioned.If this is a CA property, and in a few other states, you could have 10 or fewer investors loan through one first position fractionalized note.

In the construction industry there is nothing more dangerous than a "contractor" who can start the job tomorrow.

That way you don't carry the liability of making a mistake in how you screen for what is legitimate or not, especially since you've made it clear (and your attorney gave you dangerously bad advice) that you are trying to prevent "pitbulls" from residing in your units for insurance reasons.

They work best when mounted a a board that you can easily pick up and move without danger of snapping your fingers off. 

As it's owned by an entity, there are fewer hoops they'll need to jump through in the foreclosure process, giving you a small amount of time to restructure your loan situation.

Fewer contingencies, quicker closing, more money.

And if it means I get fewer phone calls from people with $2k saved up who want to buy $700,000 homes, that's ok with me.

The danger is just too high and it is not worth saving a few bucks.As others suggested, you can just go over it with another material.

I had plenty of people telling me it was a dangerous neighborhood and it was a bad idea.