@Joe BlowI would Eliminate that gray area that typically comes with those type of arrangements.

Typically, I BRRRR with ARV loans through a local bank for our investment properties, so I'm not up to speed on traditional mortgage rates.

You're best option to get all these questions answered is to find a local/regional bank (local to where you want to build) and see what their appetite and offered terms these days for construction loans. 

If this kitchen represents what is typical in your local rentals then make it clean and functional and get it rented.

At what point do you say that a property can't be rehabbed and you're  really better off demolishing it, then starting over with new construction?   

At the end of the day, the time, stress etc it saves me its worth it.Also for handyman work, they will typically charge you a minimum price, like $200 for a call so its good to have a list of multiple items then just calling them every time something small pops up.

Is this a fairly typical arrangement for partnerships?

I’m guessing what you call “too much EM” is likely typical for Real buyers in your market.  

AS for owner occ homes or new construction.. folks buy those on need and emotion.. not on financial return calcs.. 

The inspector I hire used to be a construction foreman, which I think is useful as he knows the local building codes.