The owner just wants to get rid of it.

We would then see about using a 203k loan to purchase, rehab, and create equity in a smaller home with less overhead liability, while refinancing a year later to get rid of the PMI.

Question two: if I were to purchase the home under the market value and also put less then 20% down, I was told I could refinance in 6 months (after the works done) and with the equity in the house then I will get rid of the PMI.

I know realtors will resist this, but ultimately it will cut maybe 5% out of the transaction to get rid of realtors.

One of major things done was getting rid of the kitchen wall to open up the space in the kitchen and living room.

I work nearby the property and know the owners who are quite old and spoke to me about getting rid of the property. 

If some hard money lender would be willing to do it (post close) in order to put that $82,500 back in your pocket, this would actually be far superior to FHA financing because you can pay it off when you wish, without having to refinance, whereas the only way to get rid of FHA MI is to refinance or sell the property. 

For flippers/rehab business it is always taxed at ordinary rates plus self-employment tax unless you elect to be treated as an S-Corp which gets rid of Self Employment tax and opens the door to other strategies as well to minimize tax liability.That said, depending on level of income that might or might no be true. :)

Saw a home by my moms house that had a for sale sign up and a for rent sign up. this home has been up for rent once before last year. its owned and it seems like hes trying to get rid of it, so I think I could get it for a good price. if anyone is interested on making a deal, feel free to message me.

Knowing it was done right, and getting rid of the liability dread is worth much more than the cost of professional remediation.