Also in this neighborhood the historic planning people have building codes like paint colors and window choices you must follow.

I would also be careful planning for the family contractor discount as if that doesn't work out, how much do you have to pay someone you don't know to do the job?

The previous landlord put in a 5th unit in the basement with no windows (also does not meet fire code).

you have a great opportunity with your background, if you can do work for other investors, learn what they do, and watch their successes and failures, seek out the more seasoned folks, even if your working at a discount, it may be worth it to learn on their dime.

does anyone's note servicer include the discounted portion of principle repaid on their 1099-int?  

Only reliable contractors who show up, meet timelines without excuses, and know the local permitting and codes need apply.  

Based on the type of issue I don't want to take a discount because there could be huge unknown costs involved and I might not get enough discount.  

Buying distressed assets at a discount and then adding value via remodel is another important way to get better returns.

(Not to mention the DISCOUNT you should try to get below $47,500). 

I am leaning toward the cash out refinancing, as it would allow for purchasing properties at a discount, adding value in some way, getting it appraised for higher than the purchase price, and having the chance to pull out more cash than what was put in.