Most people don't want to do this because this would mean getting a commercial loan since legal entities are NOT eligible for conforming residential loans. 

Those are what's considered non conforming use.  

Any conforming loan product is going to hit those losses against the rental income you claim.

We did a study of how conforming single family home properties performed during and after the 2008 crash and there was no increase in vacancy rates or decreases in rent during the 2008 through 2014 period.

Your lender may accelerate your mortgage or may vet your new partner and simple require him to sign onto the mortgage as a guarantor {the first scenario is more probable}.If you are looking for equity you could simply take a second mortgage from your friend, provided your primary lender will allow it and you conform to any restrictions (i.e. all mortgages must collectively be less than 80% LTA) dictated by your existing mortgage agreement.  

If  you are a conventional buyer - I guess YES, but if you don't have it or if you want to be creative about your purchase - there are many ways to do a deal without real cash out of pocket.If you are negotiating through an agent - that's usually a problem - you can do better talking directly with the seller - face-to-face.Not picking on real estate agents - I'm a broker and in this business for a long time - but sometimes agents don't have the skills to discuss or counsel with sellers and buyers -There are solutions to real estate problems - (real estate problem = real estate unsold)Understanding the real estate (building, lot, commercial non-conforming), theowner (foreclosures, estate, tax sale, down-sizing -)and the existing financing and liens  (existing mortages - other liens - other debets - reason for selling) s the best way to work on the problems.An investors should be able understand the many control offers available depending on the situation -Sorry business calls me - got to go: can't finish this post - but will be back - meanwhile what creative formulas would you apply to purchase any size real estate without money out of pocket - There should be well over 20 way I know of ....

Fellow investors: it is so annoying to rehab a cash- or hard-money-purchased rental then have to wait six months before doing a traditional/conventional/conforming/Fannie/Freddie cash-out refi. 

In the past, you could buy a property with cash in an LLC, rehab it, and then just before cash-out refinancing, transfer it back to your personal name to conform to Fannie/Freddie guidelines and get a traditional loan, as long as the borrower was also a 25%+ owner of the LLC previously on title. 

Also, because Conforming Loan Limits for a single family home is $625k for a single family where most of the SFHs are well over a million, there is a large amount of Equity that are going to protect these kinds of properties in the next downturn.

You can check rates for 2017 here: https://www.fhfa.gov/DataTools/Downloads/Documents/Conforming-Loan-Limits/FullCountyLoanLimitList2017_HERA-BASED_FINAL.PDF