The mortgage company doesn't care as long as their lein gets paid off correctly, as it should if you are using a reputable title company.The 1031 exchange is a totally different issue. 

The asking price for the home is 132k.OPTION 1 – Cash After Repair Value = $132,000 (estimate)Discount 80% of ARV = $ -26,400Repairs (Price per square foot) 1,190 x $5 = $ - 5,950Cash Price (seller pays closing cost) = $99,650OPTION 2 – Sandwich Lease Option – “Perfect Tenant Program” Term: Minimum 5 yearsOption Price (buyer pays closing cost): 125,500Option Consideration (non-refundable fee we pay you): + $500Monthly Rent: $950 (profit + $100 cash flow per month)Total profit (If completed full term): $132,000Note: We are the tenant-buyer, but we will sub-lease the house to another tenant-buyer.

For instance, if I acquire a property worth $500,000 and it looks like it can cashflow at $250/month, my initial total investment would be $0.

There are plenty of creative ways to fund a deal - many are legal and totally fine, but as a realtor you need to be kind of careful about how you get creative. 

Obviously that person isn't posting  things that other members  find  valuable. 

I am very comfortable with this deal for obvious reasons.

You could obviously use the HELOC, or borrow the down from your 401k, you could save cash for a down payment and get standalone financing for the new buy, or any number of things.There's plenty of SFR near you that would cost less then 165k, and I'd be tempted to use just as much equity as I needed to put a down on the first one and get it rolling before repeating the process.I wondered if you'd ever heard of the Infinite Banking Concept?

I factored in realtor fees at 8% so the 30k would be the total gain. 

I obviously don't want something with negative cashflow, but since I won't need the cash to live off of, I'm not as concerend with this number as I am the other two, as long as it's positive. 

If the total cost of your project is $400k, then the down payment on a construction loan should be 25% = $100k.