The tricky part is going to be the valuation of the undeveloped property IF subdividing your lot is even feasible but I think you will more than likely find it will be cost prohibitive altogether.  

Properties I am looking to purchase are between 800-1000 sqft, two story flat roof, unfinished basement, 2-3 bedrooms 1 bath.

As an example, let's say I find a 3 flat for 400k.

The lot is flat.

I know in urban Seattle, some apartment owner can add a flat fee rate for utilities, like $70 a month per person or so added to the regular rent.

To me, repairs and maintenance can almost be combined (assuming CapEx items exclude repairs and are their own class altogether).  

I don't have any experience in this but there was a BP podcast that was saying you have to look at the market you are in and if others are not doing it you shouldn't either since tenants will look in to getting to properties they have to spend less money or pay a flat fee for their water and...

I am considering giving a loan to a guy that bought a two flat for cash and is stalled 1/2 way with his rehab for lack of cash.  

My response is I will guarentee that when you guarantee you won't be in a car accident or get a flat tire for the next year.

I paid a flat fee and had it done.