Additionally, if you invest in a market that is experiencing rapid expansion in the economic base (like Columbus, Ohio), you'll be able to refi and get into commercial much more rapidly.

I've since pulled a second permit and will soon be appraising right around $2m with an additional $330k invested for total equity of approximately $1.2m.

If your property reaches $2 million, you'll realize significant capital gains.

In the interim, by maintaining a proper Contractor/Owner relationship with appropriate contract and being listed as additional insured under the contractor's policy, you are better protected.  

In addition with a 2nd refinance later on, you stretch the payments out again.

Typically, agency (Fannie/Freddie/FHA) funding does not allow for significant construction/improvement funds in addition to funds to buy a home.

See if you can require the tenant(s) to have an additional liability insurance for having an animal in the home, maybe?

It sounds like you already have a great property as it is - and over-improving it doesn't gain you anything. 

What innovative strategies are real estate professionals using to minimize capital gains tax on property sales?

in my opinion, unless you purchase 1000 unit, these kind of analysis is only giving additional stress.