Try to put a bigger down payment in than you might need to give yourself some breathing room.2.

The substantial cash need for large down payment or all cash that most others don't have .

However, finding properties that would cash flow with a 20-25% down payment on 400k property has been challenging.

So the problem is you wont be able to source the down payment as coming from the seller (most likely), but you can certainly add as many junior lienholders as you like, after the fact.

Simply gifting him half the property now wouldn’t immediately allow him to claim the exclusion without fulfilling this residency requirement, I don't believe.One thought would be to use a HELOC to pull just enough equity out of the current home and use it to buy a smaller home, or at least the down payment.

I am of the opinion that you'd be better served using that money toward the down payment on a property.

The Heloc can also pose as a debt obstacle since its an open end mortgage a.k.a credit card.a mortgage is also set up over 30 years so it offers a lower rate and payment. 

Then the rents would cover that payment plus the mortgage with cash left over.

The only slight red flag was that they only accepted payment via Venmo or wire transfer, but that's how I accepted payment when I was selling lead bundles, so I still thought it was worth a shot.

I was thinking he supplies the down payment and acts as a silent partner.