Trying to think of the best way that he can 1) pay off the defaulted loan without further hurting credit score and 2) getting approved for a small mortgage for this investment property. 

One positive is that I finally have time to do a lot of the leg work that I've been putting off like organizing an LLC, opening up a bank account, getting pre-approved, etc.

It gonna come down to how cheap you get the land for because if you overpay the lender wont approve the loan..

Check your state's real estate department's website and there will probably be a list of approved courses.

Let’s say for example, If you purchase a rental property for $250k, but get an approval letter for $300k.

Do I need to get pre approved for a certain amount for the refinance portion from the bank BEFORE I even start looking and making offers?

My wife does not show homes she points them to the MLS feeds and on line and once they want to see a home she then goes into action.. in the meantime she gets them pre approved with a Lender ( that can actually close) many buyers will lose deals because they don't understand the difference between a great lender and one that talks a great game.. this is a huge service a great agent brings to the table.then you have the negotiation.. just put buyer and seller in the same room and half your deals will never happen.. to much emotion.Ok now your in contract.. 

I haven’t dug in to this yet or called other lenders, but I’m curious what other people’s income was when they were first approved for loans over $1M.

@Alejandro Hayden have you submitted your pre-approval?

I was recently approved for an FHA loan about a month ago right before all this craziness happened!