It may be a good idea to decide on your primary goal in order, ie. is your primary goal to find properties that cashflow or forgo cashflow now for appreciation later.

If OP elects de minimis safe harbor ("DMSH"), he's going to have to capitalize as the expenditure is going to be more than $2,500.If OP forgoes the DMSH and instead applies the Betterment, Adaptation, and Restoration tests ("BAR tests") under the tangible property regs, we'd almost certainly have a betterment and/or restoration of the HVAC subsystem on our hands, so we'd also capitalize under this option.OP may be able to use the safe harbor for small taxpayers ("SHST") to expense the costs, however not enough information was given by OP.If SHST is off the table due to limitation, then must capitalize. 

What's that old Who song "Then I'll get on my knees and pray...............  

I think of the old Eagles song, Last Resort.

Your loan officer may give the song and dance about buying under your personal name and quit claiming the deed... 

I agree with U.I bought some new construction in MS back in 2006 2007  for go zone tax bene's  and these were slabs and I took the ones with the stained concrete floors.. those really worked.. cant beat up concrete the stain gets smudge but for rentals it worked.. carpet in bedrooms though was standard in those houses..

The newest and most proven method is to forgo the cold calling completely and instead send "tired landlords" like me (who get too many wholesaler calls already) a fine bottle of single malt scotch. 

But a lawyer friend has looked it over and told me the contracts are solid.Reasons to negotiate: space would be slow to fill, unknown legal expense to recover debt, feels better morallyReasons to stay firm: their proposal is likely well below even the current reduced market rates and requires me to forgo collecting the 20k of debt, possible they are playing games by not sharing financesAnyone have any experience with this situation?

You have two paths you can walk: forgo support entirely and jump to a fee only option. 

However, the points you will theoretically LOSE for going in on a project with a friend ranges from 0 to 6.