With proper management and updates, I should be able to increase gross rents by $160 monthly ($1,920 annually) after the first year.

Is there anyway to increase rents/ decrease cost? 

The overall ROI increases because they will end up prevent you from evictions, missing rent for a month or two, etc.You could also add in cleaning and other services that are separate from rent but makes life easier or the tenants and depending on your type of tenants most would be willing to pay for similar types of services.

The bad location, may get you a 10 cap on paper vs a 6 cap for the good location, but the value you can add, increased rents and being able to actually collect rents will make up for it in the end

He is now claiming material price and labor increases over 6 months to the tune of $40000 (total project price is $292000).

This is a double edged sword, if things turn south it can be just as bad.Refinance is best used in growing market, on top of that the tenant is paying off the principal, So even if your cashflow is low you are increasing your equity each time principal is paid. 

How often does your rate increase/adjust? 

The appreciation has been nice, but need to increase the monthly cashflow of the properties.  

I might be able to follow a similar path to increase value.

Last year for our FL properties VRBO produced 55% of our bookings, Airbnb produced 15% (increasing each year) and the rest was produced by Homeaway (9%), TripAdvisor (7%) and repeat guests (14%).Last year for our CO property VRBO produced 64% of our bookings, Airbnb produced 2% and the rest was produced by Homeaway (11%) and repeat guests (23%).I find the differences between the two locations interesting.