I'm contemplating this decision because I'm not sure if it would be desirable for tenants to have an extra room instead just a loft area.

My local market (Honolulu) is expensive and limited fund, I chose to BRRRR out-of-state. 

We don’t co-mingle funds, using business money for personal expenses…we can do owner draws and owner contributions in and out of the business checking account.  

Keep in mind that there may be legit charges associated with termination- for instance, they may need to hold some funds in escrow to cover lingering utility bills or cleaning after that 30 day period. 

We are interested in a property next door to our current flip, but our funds are tied up in the current house.

As @Chris Seveney mentioned there is not really enough equity in house 3 to get a meaningful LOC. even if you were able to leverage enough to pay off House 2 the new rate you would be paying would be higher than the existing mortgage, so you would still be behind overall.Your ROI on those payoffs vs keeping money in index funds is not very good either.Lastly, remember that cash flow from rentals can seem good until it’s not.

The idea is that he will 100% fund the acquisition of buy and hold properties (down payment, etc.) and I will 100% find, acquire, and manage the buy and hold properties. 

This fund supposedly had the highest rate of return overall coming primarily from appreciation.  

@Kevin Orellana do you like the asset; is it in a neighborhood that you are proud to own it, do you see it continuing to be a desirable place to live? 

Bottom line, initiate the transfer of funds from Federa back into your bank account and contact your bank immediately to initiate a dispute.If anyone actually got to partake in an auction or got their money transferred back into their bank, I'd like to hear from you.