If you ever have to go to court on something like this you will be in the odd position of being both the landlord and the tenant, so I would leave nothing to chance or interpretation.Personally, I agree with Nathan - I'd have real questions about any potential tenants that were OK with this kind of arrangement. 

This creates two loan payments ($100,000 of equity and $300,000 on the new mortgage).Key NumbersHome Equity Loan Interest Rate: 6%Mortgage Interest Rate: 7%Rental Income: $3,000 per monthExpenses (management, taxes, insurance, maintenance): $800 per monthIncome and ExpensesMonthly Rental Income: $3,000Monthly Expenses: $800Monthly Mortgage Payment: $2,000ExplanationThe investor earns $3,000 in rent each month.They pay $2,000 on the investment property mortgage and $800 on other expenses.This leaves $200 profit each month or $2,400 per year.However, you have to pay $6,000 interest on the equity borrowed.This leaves you with an annual loss of $3,600.This example shows that while the rental property generates positive monthly income, the interest cost of borrowing the initial $100,000 results in an overall annual loss.

I’m worried we may find ourselves in a position where they don’t pay and we may have to sue.

The tradeoff on the joint financing is going to be the (refi) costs associated w any transfer of ownership, HOWEVER transferring title to the LLC is unlikely to trigger due on sale (b/c it sounds like most banks simply aren't monitoring and/or enforcing due on sale in these instances) which would make the ownership (sans the actual mortgage note) more easily transferable than exiting your position as an individual owner?

Hey Seth - With your construction background, you're in a great position as leveraging that rehab experience will be a huge advantage when securing financing.

These were all positives.

Plus, there's still so many positive cash flowing and 1% deals here in Columbus Ohio.

It takes time and they're not doing so from a position of just getting started.I started out buying rentals off of the MLS, putting 20% down.

We don’t know your financial position so only you can decide if this is right for you.  

If you find out what their dreams are, perhaps refinancing can align with those dreams if you position it the right way?