It's normally the desire for immediate income that steers most investors towards bad investments because they are hyper focused on cash flow which is often portrayed differently in spreadsheets than in real life, and should be a consideration but not deciding factor.

It seems like you've had a bad experience.

Good move, or bad?

It's just a bad business. 

I'm going to give a verbal warning followed up with a text message describing what was talked about so we have records if something bad happens. 

If you have a bad feeling about someone or fear they are going to steal your idea that is not a partner you want to be presenting to. 

If you were able to pull out $500,000 in existing equity out of a paid off rental and disperse those funds to acquire 2, 4-unit MFR properties and had the income to support any future CapEx and the interest payments on your HELOC ( including the extra income to paydown the loan ) would there be any " gaps " or problems I'm missing in this situation where it would be a bad enough idea to not go through with acquiring more properties through a HELOC on 1 of 5 properties you own?

If you reported a lot of expenses and showed a loss, then the loss will be treated as a liability in DTI calculation.

This would likely be a bad investment in your position. 

Long story short, I am in a bad financial condition as of recently.