Nonetheless, even with their long experience, they often barely make a profit, which they say they don't mind - because their goal is to gentrify the whole neighborhood, one property at a time.

What profit margin is common? 

If you have ever purchased an investment property from a family member (or friend) or structured some sort of profit sharing arrangement I’d love to hear about it.

Figure another $1000 if cash, significantly more if a loan.Subtract the $25,000 rehab.Then subtract the $160k purchase.Looks like $21,000 or so in profit.

As long as I make a profit, I’ll be fine.

You "paid" or "offered" value for the note that is equal to the note so there is no taxable profit in the note. 

Getting a property at a discount, adding value through renovation, getting tenants and showing the bank a "seasoning period" then pulling your money out via refinancing allows you to get back potentially all if not a profit from that deal, and go find another one. 

I have verbally told my clients the information but I think I will use your list (with attribution) :):)My short verbal spiel would be 1) handy owner occupants don't need to cash flow or make money / profit and 2nd will you have a dumpster onsite the day of closing with day labor for the demo, know EXACTLY which electrician, plumber, flooring, cabinet guy, sheetrocker.....that you will use and when will they start, the PART NUMBERS for the cabinets, flooring, paint colors, doors, light fixtures.....

One of the properties is actually split with a friend of mine - both our names are on the mortgages and our two families have split the expenses and profits 50/50.  

My personal preference is to look at metrics which take the opportunity cost of capital into account such as internal rate of return (IRR), net present value (NPV), or profitability index (PI).