The cash flow borrowing full cost via heloc will be marginal, possibly even negative if using realistic expense estimates (I.e. something near the 50% rule).  

If it is a private loan or hard money loan, chances are that they won't have an NMLS since it is not a consumer purpose loan. 

Do I draft the contract price for higher than the actual build price that would include our estimated profit (sell price) or would a separate agreement between the lot owner be sufficient enough that outlines the deal since we don't know the actual sell price until it goes to market?

For example, their rent is $2000, they pay me $1000, I then apply the $1000 to the renovation project, which they estimate to be around $8,000.How should I write up the lease agreement as far as collecting the rents?

I am planning to include the estimated property value and the funds that will be transferred into the business bank accounts.

Sure there is a very small chance that something will go wrong, but with the tightening rental laws spending a little on a proper lease is smart.

Is the 5 property ceiling (estimate, of course) because of debt to income ratio?

Is the 2.7% an FHA by chance? 

@Charmaine Alard why don't you start with comparing the rent you charged your friend vs the rent you could have charged according to Zillow Rent Estimate or Rent-O-Meter.THEN compare that to what a PMC would cost.

And have you tried to work with Premier Bank by any chance?