This is taxed at 25%.Any gain in excess of depreciation recapture will be taxed at favorable long-term capital gains rates (likely 15%).

If you have cash you want to burn and can accept that you may end up loosing money on the flip.

The FDIC and many state regulatory agencies will require the lender to substantiate a global portfolio freeze based on value.In the past, I've frozen my entire portfolio but I was able to document that, on a global basis, values had decreased in excess of 50% from origination value.

One small bump in the road and with the lack of extra cash flow you might end up loosing your home and the rental house.  

What does he have to loose if he rips me off for my deposit?

The carpets are not worn or loose.

My goal is to do a full 20, get out at 42 years old, and be done working with enough money to cover expenses + have ~$10K/month excess.

Due from Seller at Closing$3,536.49 01 Excess Deposit02 Closing Costs Paid at Closing (J) $3,536.49 03Existing Loan(s) Assumed or Taken Subject to 04Payoff of First Mortgage Loan to 05Payoff of 2nd Mortgage Loan to 06 07 08 Seller Credit 09 10 11 12 13 Adjustments for Items Unpaid by Seller 14 City/Town Taxes 15 County Taxes 16 Assessments 17 18 19 CALCULATIONTotal Due to Seller at Closing (M)$46,304.86 Total Due from Seller at Closing (N)-$3,536.49 Cash From x To Seller $42,768.37

Many states have laws that allow immediate evections if the tenant is causing excessive damage.I think an hour of time with a real estate attorney would be money well spent.

Partnership operating agreements are very flexible.You could do a waterfall schedule for both allocation of income and capital distributions.e.g.1) You're allocated a cumulative fixed annual return on your unrecovered capital contribution (6%, 8%, 10%, you name it)2) Profit in excess of the fixed annual percentage return is split 50/50.Capital distributions could be something like: first distributions are to recover your capital contribution(s), then preferred return accrued to you, and finally the 50/50 profits.Food for thought.