That process doesn't work if you buy a nice house with a maximum LTV conventional loan because you've done nothing to increase the value.

Once you have one under your belt, you'll become more confident to move forward with others. 

Larger buildings have fire alarms and sprinkler systems; fire walls; wider hallways and stairwells with double exits, etc ... all measures to increase the available window to exit a building in the event of a fire.

Dead equity is doing nothing to increase your income.

@Joe Lambert That makes me think that the rents I have been using for the area are too low and I could increase my rent estimates.

My friend converted stuff to gas on the main house to increase Amps in the panel.

Your likely better off finding something that isn't rehabbed that you can update and increase rents yourself. 

To be fair though, it was great while it lasted.....His strategy would be to buy liens on properties that hadn't had lien in the past, and if they did have some that they were paid off fairly timely... only owner-occupied homes... and other criteria that gave him a some level of confidence that they would be paid off (he wanted the 18% interest, not the property). 

Can I raise rents immediately or should I rehab to a certain degree to justify the rent increase.

You need a plan to increase the value.