We are incentivized to believe that real estate prices and activity will only go up from here no matter what, so we manipulate data and our narratives to reflect that. 

$1.4k is the reflection of renting a unit that likely cannot legally be rented

They want a tax return that shows an accurate reflection of your income so, if your tax return shows a small net profit or, a profit too small to qualify for a loan, that's either your actual income or, you lied to the IRS.

For the record, this post isn't intended to reflect negatively on the bank whatsoever.  

Secondly, does profit for each party reflect their initial investment?

I told tardus I won't commit to then for at least a week so I could reflect and determine if this is the best course of action.

This reflects that the tenants recognize what is happening in the rental market and the challenges to find quality rental housing. 

The meaningful appraisal worth paying for is the one that reflects the added value of a significant rehab, and once you have it--the first appraisal is rendered a meaningless waste of money. 

That extra commission is not reflected on the spreadsheet, but it's a nice bonus to further leverage having a license

I think your advice does not reflect that this is a business and he is loosing money.