Creative Financing - Gift of Equity? Built in equity

[Carly M.]

Hi, I've looked on the forums about this tactic, but have only found answers regarding family. Would like some input from others who may have used creative financing this way. 

A friend bought a property at Auction for about $230,000. A house with a duplex on the property. The property will need a little rehabbing, not much. He's willing to sell it to usr for $395,000. It's assed by the city at $485,000 and we are working on getting it appraised, we're thinking it'll be mid to high $400's. 

My friend was willing to seller finance it to me, but now his partner wants his money out now. We have about $20,000 in savings we'd like to put into the rehab, and not use as a down payment. I have another $28,000 in an IRA.

My questions is: Can we somehow use the equity as a down payment with conventional financing? I've found "gift of equity" but it looks like this is for family members by blood or marriage only. We can do FHA loan but would rather do a conventional one so we don't have the huge PMI payment each month. We will fix up the property and rent it out and the equity will go up even more once it's updated.

It's prime property on the Ocean in Alaska. One block away is a house listed for $585,000 same view, same SQ Feet and bedrooms but no duplex on lot. So we know it will appreciate and it's a great opportunity we can't pass up. We are new to this and any creative financing help would be much appreciated! 

Thanks!