If you are taking on one project at a time and have plenty of liquidity to not only cover closing and rehab, but also rehab contingency for unexpected expenses - go that route.

If an unexpected financial setback prevents this, my first approach would be to discuss extending the terms or refinancing/converting to a payment plan that includes lower interest and repayment of principal. 

I've posted extensively about some of the challenges and pitfalls of real estate investing, like how it always takes longer to remodel or always costs more to carry, expect the unexpected but also trust to find unexpected solutions. 

Also, one punch can cause really unexpected results, especially if the guy is much older.Not worth it.

@Alan Miegel, Condolences about your Mom's passing.Going the CO-refi route, closing costs and rates will be high, and it requires tenant compliance with the appraisals, which may also trigger the need to make unexpected repairs.

Generally if you follow news outlets such as the Economist, Wall Street Journal or here in Austin we use the Austin business journal.

Ask them.Even if you don't get any help from the builder, at least you know what to expect and can set a schedule for repairs over the next few years instead of getting calls from tenants and having to come up with big unexpected repair money.

Stay conservative and be prepared for the unexpected. 

However if you build a Business relationship with the tenants from the start, making it clear you are serious about the terms and rules, and following that up with fair and honest dealings, even when an unexpected life event happens, the tenant will more often than not communicate and make good decisions.The one thing PM's bring to the table that is never discussed here, is Knowledge.

Well, if you are going to purchase a performing note directly from your self-directed IRA then yes you could pull money from other Assets in the ira to fund unexpected expenses.