We purchased a 2nd lien, and by the time it was transfered, we passed the date to file as a secured creditor due to the prior servicers attitude of most will not make it through CH 13, and they are over 2 years into the Ch 13 plan.So we are unsecured and have to wait for it to be dismissed, and we can't foreclose since they are in Ch 13.

The construction loans I know of require 10% down on the final price and they would want money in the bank after closing in case of cost overruns or the property not appraising for the build price.If I were you I would go to open houses of new developments in your area and check out the builders, and their terms. 

Should I open a separate bank account for all rental income and expenses that will occur?

But you'll get to establish a relationship with a local bank (or several) and potentially open the door to obtaining a business line of credit down the road once you have built up trust with the lender.

If your guy is preapproved for a loan, his bank most likely isn't going to fund the deal with income like this for the reason that you mentioned, free cash doesn't even cover debt service.

I see funneling income in this way as a form of paying yourself first and the bank last.

You’d have to transfer title to yourself, finance in your own name with personal guarantee, and then transfer title back to the LLC, in order to make that work.  

I had a similar question:  https://www.biggerpockets.com/forums/311/topics/588871-az-rental-friendly-bank-for-heloan?

We currently own and manage 3 other rentals but out debt to income is high so conventional/bank loans are not currently an option for us.

Once it’s seasoned after 6 months, refinance through a local bank or credit union.Now, I am a fairly new investor with my real estate license and a few units under my belt but I recently left a regular 9-5 and want to see what my options are in order to refi on the property with no W2 income.