The construction funds are typically released in draws where you would advance the work first, then he would inspect and reimburse you based on your pre determined budget. 

Buying a home at auction is one of the most risky forms of real estate purchasing (this varies widely on the style of auction), so if you'd be putting said investor in a spot where they COULD make $30k for the risk they take on, but then that $30k is eaten up with the inspection, subsequent repairs and replacements, and holding costs then that's a sticky wicket.In short if you can truly guarantee the investor a certain return, it's worth a conversation!

Now that that builder can't draw construction money.

Do you use a property management company to handle your rentals or know of a good lawyer that can draw up strong lease agreements?

Option 2 also theoretically helps with my debt to income ratio though I have no issues there at the moment either.Cons of option 2 include the fact that the LOC is a variable rate and will likely go up in the future as well as the fact that the bank could chose to close the draw period at any time.

4) In subsequent tax assessments, I suspect square footage to go up given that the basement is finished, but will the assessor now include these 5 BR into the tax calculation?

It will cost about $300 give or take for your area for a consultation more if they need to do drawings for you. 

Just make sure that, if you draw on it, you leave enough room to cover the reserves you feel you need. 

Once the PM sends me the owner draw (left over) to my bank account, I then transfer the money from "Fund Held By PM" to my bank account in QuickBooks. 

And you have a lesson to draw from later!