I think I'd also have to establish an LLC, and I've researched that it's much more beneficial to keep my home as a primary residence since the Homestead Exemption is very much more helpful. 

That's a huge difference.Cash flow is for people who would otherwise be investing in mutual funds.

You can have a "solo 401k" at one of the major financial firms like Vanguard or Fidelity but they only allow you to invest in their portfolio of stocks, bonds and mutual funds. 

I believe that purchasing a house now would be far more beneficial to me rather than paying rent.

Are there any standard practices for acknowledging their contribution in the transaction, or any recommended ways to structure this working relationship to ensure it's beneficial and compliant for all parties involved?

He has made it clear he will not owner finance. are there other options for to minimize capital gains tax and in order to make this deal more beneficial to all?

Granted, rates are headed down so it would likely be beneficial to refinance in the next 1-2 years. 

We try to achieve 7% returns on any stock/mutual fund investments because if we hit 7%, then we double our money every 10 years.  

Makes little to no sense to me, when it's some much more beneficial to just become your own best tenant. 

You'll PITI will go up but you still need to cash flow to make it beneficial for you.2) you can do a DSCR loan which will cover down-payment and rehab cost.