If my options are pay $150 PMI or 15% more downpayment I will bet the $150 for the next 3 years as we are in a mkt where appreciation is no less than 5% annually. 

Make copies and cut out standard sized appliances.

I bet local lenders, inspectors, title companies, and insurance folks would have a similar read. 

if it is, only reason to add sheetrock is to increase value (for refi) and attract better tenants. look at comps in the area and see how they are done2. minisplits can be purchased and installed for $800-900 each. a standard forced air system runs anywhere from $4,000-6000, depending on the size. without seeing the house, its hard to say which is better. 3. some things i do to "tenant proof" my rentals.

Sometimes, things don't (or do) make sense at the asset level, but there are strategies above when it comes to overall portfolio and lines of business (e.g. right-sizing business, opex reduction, relocation of assets to e-biz). 

Your best bet is to raise the capital from a private lender or syndicate the deal.

Unless this property has a lot size below 1,500 sq. ft. and has significant deferred maintenance, I don't think you'll have a tough time finding comps to justify an appraised value of $700K.Also, the closing costs should be ~5% of the loan amount, not purchase price.

I do not have the size of the property nor the condition of the property you are looking at but I will say you do not see too many single homes that go over 3K/month in that area.

I bet it could sell for more than $200k, but I am being conservative just in case.

Giving your brother-in-law the benefit of the doubt, I bet all he wants is do is complete his project and pay you and everyone else off.