If you build a huge amount of equity from your improvements and you really love the house, you could just stay there and get a LOC to be able to access the equity (~80%) for investing? 

It seems apparent to me that actually using it to pay down debt is counter productive, until you're ready to refinance if that's your objective.It makes more sense to me to save the cash flow (true cash flow, not vacancy/maint expense savings) in a stockpile to use it when an opportunity comes along, whether that looks like a new property or an opportunity to improve either financially or physically the existing state of a income producing property.The opportunity cost of something else coming a long is probably what I'm skirting around, but in my mind it makes sense to bring in a respect for time and opportunity to the equation.I also feel like something I extrapolated from Gary Keller's Millionaire Real Estate Investor is worth sharing for anyone reading for nuggets.  

Additionally you could realize any of the forced appreciation you've been able to create through renovations/improvements as well as any appreciation gained at purchase by receiving a discount against market.  

* Would the old owner have to pay for any improvements you've made to the property?

The expenses seem a bit low, but they just did a lot of capital improvements which may explain that number.As for what to expect in maintenance costs, well that varies of course but nationally for multifamily naahq.org publishes repair/maintenance costs at 3.7% of gross rents.

Now, improve the property and sell at market value, that's fine.Another mention, buying a note is not buying the property, if you end up with collateral you have a lender's interest, not an owner's interest, you can't just start renting it.

If you want to earn more, get into bigger bucks, improve your education, learn to take more risks, learn to operate in other areas that can command higher profits.

I wrote a post for the BP blog just today about improving your credit score. 

It would be different if he was a paying tenant who wanted to paint the master bedroom blue instead of the existing white, or who lost his job at a plant and wanted to improve your property for rent. 

Your refi amount back won't be 100% so you'll need to talk to lenders and see what % you can get back and then decide what your improvement will increase appraisal value.