seller finance/creative finance

[Elias Munoz]

Hello biggerpockets folks I need your help! I been looking to buy my first real estate property this year and a rare opportunity came through that I cant pass up. We are trying to figure out every way to make it work. We found a off market house in a great location but needs work. My wife and I know the owner really well and we chatted with her about selling the house to us. The house use to be her parents but they  passed away. She now has it as a rental but is willing to sell it us cause her parents wanted the house to go to another young growing family to continue the tradition. The house is 100% paid off no mortgage. The great thing she said shes even open to do seller finance to us if we could bring her a good offer. She doesnt rely on this house income. Here's the tricky part to the story. Her niece owns half the house but doesnt want the house and just wants half the money of what is worth. So here are couple questions I need help with. 

1. Can our friend (half owner that we know) pull money out of the house to buy out the niece? What are the Pros and Cons about pulling out money? Is their any fees? We really dont want to get a loan cause the mortgage payments would be a lot and wouldnt have money to rehab the house

2. If she could pull out money out of the house to buy her niece out what kind of creative finance strategies can we offer. She said to bring her a offer. This is where i need your help. I'm open to suggestions.

3.Here what I was thinking. The house needs a good about of work but its in a B+ neighborhood and its the worst house on the block. I'm in construction so I could do most of the work myself. It has two garage. One is detach so our plan would be to make that into a ADU to help us pay her our monthly payment. Lets say our payment would be 2000 a month and the ADU rents out for 1500. That would be only 500 out of our pocket and could do more after the house rehab. After the ADU is done we would start the house rehab to bring the ARV up. We would do a cash out refi and pay her a good chunk to pay her off sooner. Hope everything I said makes sense. Thank you for your time.