Lets say inflation is 3% and interest rates are 2%.

Meaning that you'll be able to get a loan for more than you put into the house because of the rise in value due to the rehab.

I have seen too many times realtors inflate the projected rents just to get the sale. 

Inflation + 5%.

Which you should do anyways given the current rates (low) and the general trend for the last week (rising).2) HELOC.3) Preapproval.If you go 2 before 1, the refi will have worse interest rate pricing.

I expect therefore that prices of condos will rise. 

Also as property taxes rise and other costs you do not get reimbursed like retail NNN leases.

Historical appreciation does not historically exceed inflation.

This works for both parties, because it allows a buyer who can't get conventional financing to buy a house, and to capture equity from rising house prices, and provides you cash flow and an equity payout at the 5 year mark.  

We now have rent control in California limiting rent increases to 5 percent, plus local inflation, per year.