If you have equity and decent credit, a conventional Fannie Mae HomeStyle (or the Freddie Mac version) would likely be the better option instead of an FHA 203k loan (which will require a 3rd party HUD consultant to oversee the deal in addition to having the contractor involved). 

But after working with the family, we purchased it for $42,000 and got to work.We had some unique challenges, like dealing with one of the heirs who wasn’t very cooperative and required a payoff to sign the paperwork we needed for clear title.

The vast majority of properties at their available prices will not meet this requirement.  

The real prohibitive costs come from the legal, compliance, and reporting requirements of registering a security.

A partnership requires three things to be successful - Experience, Capital and Time.It looks like you have the capital and experience but maybe not the time.I have my doubts about this working if you have a friend who has weak credit and a limited cash flow.

I understand this is not a requirement, but I have never received a damaged unit from an inherited tenant or any legal issues.

It's a more involved discussion that requires one on one communication and no, joining a "community" does not prepare you.

So in all, no real tough spots other than normal aside from not knowing you were required to hire an electrician, but that's unusual anyway.   

Depending on how it is done and what guarantees the government offers and requires of the released entities, interest rates could move slightly higher.

Or does your financing terms require you to do something else (which is why we need to ask question #2).Maybe the original poster will respond as well but those are the 4 items I would tell you to uncover.