You want to bring something valuable to the table that will make them see you as an asset rather than dead weight.

My recommendation if you are going to finish would involve adding french drain and sump pump, sealing walls with dryloc, then 2" XPS which acts as the vapor barrier, before framing and finishing. 

It took some convincing as they thought this might be some sort of trick, but it has greatly improved our relationship and they have explained to us how they were struggling to put food on the table.

You cannot accept more under the table from them, nor can you forgive them their share.Reality check here. 

I feel I’m fortunate since I hear the horror stories about lenders not funding at the closing table.  

Over this term, I will have higher returns due to property appreciation, lower rent losses and will be insulated from downside risks during recessions and crisis times.A couple of years ago, I consulted a real estate investor for optimizing my mortgages and he said that I was too conservative and leaving money on the table.

HOWEVER, a 3.5% FHA or a 5% Conventional loan on a small multi-family home is still on the table for me, right?

The lenders I bring to the table leverage anything from HELOCs to Retirement funds, Credit Cards to Savings to invest in this amazingly passive investment vehicle with a secured lien and ample layers of recourse to recover your principal investment at the bare minimum.

Would the “ARV” of the improvements suffice for a lender, or would we need to come to the table with a % down, some amount of cash reserves, or other collateral?

@Jason Graves Put a cup on the table and fill it halfway with water.