Joe its all about NPV  and rate of return for investors.. either way your going to take a pretty big hair cut out of your equity to do what your wondering about. 

There is also equity pay down and the tax benefits including accelerate appreciation. 

My father is a contractor so we will be able to complete most of the work ourselves while keeping costs low and add equity.

HUD.GOV is originating source for FHA loan info.

syndication/private equity deals have a much better chance of penciling and providing decent CoC as there are more economies of scale and sophistication at the GP/operating group level in general.

We have secured a home equity loan against our home (which we own out right with no mortgage payment).

Third, do you have a lot of equity?

Sounds like a cash out refinance would be the best way to tap into that equity. 

If the other two parties want to flip a house maybe they can do just that as partners and then sell you the house which you can buy with a primary home loan with low down payment.

If I were to approach a seller of a $200k home, and they had a remaining mortgage of $100k, could I get a new bank financed loan for that $100k, and have the seller finance the remaining $100k of equity to me?