If you go in that direction, I highly recommend speaking with multiple franchisees from each brand before making a final decision.

This allowed me to get a construction loan to repair the other buildings and repay my investment into the property.

Finally, I would add allowing pets to your home. 

@Yents Ybrimovic If the 203k loan only requires 3.5% down and you can finance all the repairs in the loan - then what exactly is your friend contributing?

Here are the pros as i see it: easy (no purchase necessary, you know the property), likely prop 13 property tax discount, possibly below current rate loan.  

I'm using my VA loan so I don't have to put any money down & can keep money in my account to fund rehab deals. 

I have found some information that might be helpful John.There are government backed programs like Fannie Mae Homestyle Renovation Loan and Freddie Mac Home Possible Renovation Loan, in addition to the FHA 203k loan. 

You should speak with a CPA and a tax attorney to be safe.Regarding your thoughts about 1/3 equal splits - sounds good until you check out the cost of getting a DSR rehab loan or borrowing hard money.

We currently own 13 rental properties and have paid off all loans/mortgages including our primary residence. 

I'm a new real estate investor just looking to get more knowledge on how FHA loans work.