You can certainly do lease options as an agent, using traditional listing agreements.  

My goal is to buy and hold single family homes (traditional 3 bed 2 bath).

There is almost no way you will find a lender who will do a traditional mortgage for $20 with $80k in repairs needed.

The overall cost was more than a traditional house because the asbestos removal has to be contained and disposed of in a different way.

I'm in that space in between traditional financing and true hard money.

I think that most people's bad experiences with the program stem from not working with a team that knows their way around the program.You're right that appreciation is not guaranteed - but that is true whether you go with a 203k or a traditional purchase.  

After purchase will convert hard lender to private lender with lower interest rate for traditional loan.

OPTION 3Offer the seller to have the property listed and sold the traditional way. 

I would pay finding fee if it cannot happen the traditional wholesaling way.

Reality is, after asking that question, obtaining my license and going through months of learning about real estate,  I see with hindsight my friend was best served by listing and selling it the "traditional" way.