How does the 25% equity spread on the combined total come out higher than the spread on each property added together?  

I was surprised he put $750K down on the two, selling price $1.1 million combined, about 10 years ago.

Here is some info on the product: Product Overview Combines home purchase or refinance (limited cash out) with home improvement financing in one loan with one closingProvides a convenient way for borrowers to make renovations, repairs, or improvements totaling up to 75% of the "as-completed" appraised value of the property with a first mortgage, rather than a second mortgage, HELOC, or other more costly financing method.Funds can be used for repairs or renovations that are permanently affixed and add value to the property.

@Andrew Zbrzezny depending on which lender you go with your ARV is going to be based on a combination of market comps, and income or one or the other.I have seen some banks just do an income based evaluation and some just do market comps. 

@John KimThe tax rate on a short-term capital gain is the exact same as ordinary income.What you're really worried about is SE taxes.It's unlikely that this will be capital gain treatment. 

I have since retired and my properties provide a nice cash flow retirement.Realistically, if you spend 250k or either a duplex vs SFH, your combined rents on the duplex will be better.  

Regarding you expenses:Missing CapEx, 15% total combined w/ Repairs.Vacancy might be a bit low (I figure 8%), but this is super local.Water/sewer looks high. $40/unit/month is usually good.

But it sounds like a combination of things could work

They are largely deceptive and misinformed...this is a volatile and unhealthy combination.

Since that's not real estate it doesn't qualify for 1031 treatment.