Now ask how they derived it and what cap rate comps they used to make their purchase decision. 

I suspect this question derives from some prosaic advice repeated hundreds of times on how to rent a home..I am curious if any of you landlords actually make an effort to answer this question.(?)

If it were the tax payer making the repair and claiming nothing on the sale but placing his profits in the shop that ultimately reduced his tax liability, there could be issues of sham transactions.A sham transaction is one where the is little business purpose for profit, where the transaction is accomplished to derive some other benefit that would not have normally been conducted with an unrelated party.

FNMA mortgages derive funding from different sources that can get away with long terms on long amoritizations.

(great question derived from the quote above)

It should not be deriving a (material?

That is because the value in the transaction is derived from having said informational advantage.

Great point Rob and one of the many reasons that success in RE flipping is derived from attention to detail.

How do these banks/attorney's derive these amounts?

Ask yourself if the penalty for violating the rule (the immediate distribution of Your IRA and the assessment of penalties and taxes due) is worth risking for the benefit you will derive.