We will start with a clean slate in March with the current rent (which is about $300 below market).

@Michael Peters It's bamboo flooring but we do have some extra planks that'll help with the cost.

-The kitchen sink is badly scratched on the "floor" of the sink.

The kitchen floor is caved in, mold everywhere and may not be structurally sound.

I plan on ripping out the old carpet and putting down hardwood flooring, updating light fixtures, bathroom, ceiling fans etc.  

Yes, the $5,000 worth of work is a guesstimate, assuming I'm only doing touch up on flooring, water damages (maybe), etc.

My parents earn 4% annually on the $160,000 project costs and $130,000 equity (current value minus mortgage) until I sell the property or am able to refinance them out of the full $300,000+ amount.Option 2: I help secure additional funding and a 2nd phase begins where we renovate the existing 1,500 sqft and build a second floor to increase the overall house to nearly 4,000 sqft.

There has also been multiple upgrades on the house such as a New furnace (2017), heat pump (2019), roof (2017), laminate floors (2015) & plumbing (2014).

Painting and flooring $10-15K go a long way and you might be able to just get it rented in that condition.   

Two or three buyers that walk, and the seller's position may soften and your "bottom-feeder" reduced offer may start to look a whole lot better if there is no one else on the dance floor – then you start making money.Hmm, Do you see a theme here?