Liquidated damages can compensate the owner for lost rental income or extended financing costs.

The real prohibitive costs come from the legal, compliance, and reporting requirements of registering a security.

That's where you should start, because I am afraid you are way off with your cost projections.

Simply put, we start off with the As Repaired/Completed Value (ARV), then subtract from that number a reasonable profit, the rehab cost (scope of work), which we've gotten good at, a contingency reserve for any "unexpecteds", our cost of capital/carrying costs (interest and costs of the leverage used), and our costs/fees on the buy and sell sides of a flip.

Again I cannot collect rent to justify this cost/effort.  

Multiple people including myself have tried to caution him of the the true costs but he's been repeatedly dismissive and has made it clear we give him motivation and he wants to prove us all wrong (whatever that means). 

.: Cost of risk scenario. 

Managing rentals isn’t for everyone, especially after dealing with bad tenants, challenging property managers, and increasing costs.

Time and practice will still teach you as you do deals but it will help you understand what things costs for the size of the property 

Quote from @Patricia Steiner: There are several lenders who offer low/no closing cost options for first time homebuyers.