The alternative is to set up a self-directed IRA, or better, a truly self-directed Solo 401k plan, invest in alternative assets, and then do the conversion.

Take advantage of the lower downpayment programs early on and once you are tapped out of conventional loans, I would consider alternative financing. 

Alternatively, you're a 5 minute drive to the resort.

To navigate this, consider options like keeping your current home as your primary residence while house hacking a multi-unit property, using the HELOC funds strategically before moving, or exploring alternatives like a bridge loan or cash-out refinance.

That said, there are alternative ways to meet the requirements, and with proper planning, you might not need to rely on these specific tests if most or all of the participation comes from you during the first year.

In the alternative, everything seemingly goes well, he has lied on his application (very dumb move) which you don't control and down the road a year or two you get a "knock, knock" on the door from some very stern men who want to talk to you about the transaction.

I would recommending looking at your property through the eyes of the NBA, or Next Best Alternative, to see if there is a market for you property as a mid-term rental. 

Are there any red flags I should watch out for when dealing with buyers who propose alternative arrangements like this?

(I realize there are alternate structures - this is how we are doing it.).

To me the cost of purchasing cash flow is too high, better off being cash negative 2) alternate rent models: mtr, str, rent by room.