Once you have strong credibility and have put proper legal structures in place for deals, you can expand that.If I had a close friend with experience managing, rehabbing, and producing income from multi-families in Pittsburgh, it wouldn't take much more convincing than that.

Before paying the 1%, the client wants to 1) funds will be placed in escrow until closing; or 2) lender produces proof of funds when the commitment letter comes in.The lender has stated to the client that they do not use escrow companies so option (1) is out, leaving obtaining POF upon issuing the commitment letter. 

I would not pay off the 3 unit early if it has conventional financing and I would definitely have a plan on how to leverage the additional equity to produce a good return for the associated risk. 

How much "income" do you expect to produce with this rental home?

@Derek Morrison higher cap is better when you are buying, as it means that comparing to the price you are paying the property would produce more cash flow to the owner. 

The demand for income property investments and income producing rentals is massive.

Yes, you should be able to raise rents in the future, but you base your numbers on what it is actually producing today.

Have you closed on the deal or still able to opt out.Keep in mind most SFHs do not generally produce much cash flow, if any, so you are probably gambling on appreciation.

Just some Libertarian musings but Wasn't it Atlas Shrugged where the good steel providers were required by legislation to slow production so the bad steel producers wouldn't be dis-advantaged? 

There can be many advantages to this - more units producing revenue but in a smaller space for easier management, financing, logistics, yield curve ... etc.