If it is still in there, I bought an REO a few years ago when there wasn't as much competition, and used the inspection to leverage another 10k off the price, by producing contractor bids for various capital expense items that would now have to be disclosed to any future offers should mine not work out. 

All agencies use the Underwriters to produce the Title Commitment all the work and risk assessment is done by the Underwriter.

I called the foreclosure the druggie house as they totally cosmetically altered the house.Our goal is to have our houses producing around 100k a year  when he retires from the military.  

This is a bigger issue for rehab flips than incoming producing CRE.

If you invested all of your assets in income producing investments like rentals and notes today, would the yield fund retirement? 

This will help you control your own destiny (retire when you want to, not when someone else kicks you out the door).As an asset class, equities tend to produce higher long-term annualized returns than real estate.

It seems to me that $2k. is a fair upfront invest, but not without a money back "guarantee" if one "jumps through the hoops," and does the legwork that should in turn produce the RESULTS.

MOst likely if you seller finance, the end buyer typically puts a minimal amount of downpayment which is seldom enough to pay off your Hard money lender.Also, the high interest rates are not suitable for holding for long term because the net income produced by the property has to be extremely high to cover the debt & operating expenses.The proposed exit of selling your note will be challenging as well because as a note buyer I will tell you, note buyers want adequate equity cushion to protect their investment, and they want a decent yield on their money as well.  

This will just end in despair, madness, and agony.If you explore all of the above topics with your developer, it should produce plenty of very constructive conversations that should give you a good idea of whether or not to move forward.

I highly doubt a property like this will produce reliable cash flow and consistently carry your debt.