Typically, if people don't want to list on MLS during a seller's market, it means either the property is not likely to qualify for traditional financing, which could work in your favor, or they want more than the property is actually worth and can't find an agent to agree on a listing price, which could be a major barrier- you might try to see if you can find this info out.

I typically spend up to 20% of my commissions on lead generation online and off.

I don't think you typically pay points on FHA, so that might be some upfront cash savings.Have you called other property managers to see what their opinions of the property and rents in the area are?

A lot of investors overlook the deals/opportunities that are already easily within grasp of their existing portfolio.Your analysis seems apt to me, obviously the 'your time' is hard to quantify - I'm not sure that the jump from 2 to 3 bedroom would enable getting less needy tenants - at least with what we're doing - I think this would actually typically be the reverse if I had to generalize. 

Typical rentals in Highland Park for a 2 BR 1 BA run about $800-$900.

Listings on MLS are typically priced at or above RETAIL market pricing. 

@Quandra Adams - your lender is correct and somewhat incorrect at the same time.  203k's allow for any renovation related fees- such as the HUD consultants work write-up ($400-$1000), draw inspections (up to $350 per and max of 5), title bring downs (typically about $100 per), architect (if your using one), engineering (if applicable), etc are allowed to be financed into your renovation budget. 

Is this sort of arrangement typical?

Typically, you'd need 20% down, but I've seen it where you can go as little as 10% down. 

The numbers typically do not lie.