That said - I think a simple muitual fund would give me better returns on the same money ($900k) at 8-12% (i.e., $72k - $108k). 

You can purchase this with a low-money-down FHA loan. 

I was able to get my money back in using business line of credit without touching or doing anything to the property.

He became a contractor, worked hard, and grew a successful business that produced a lot of money.

You've earned $132,000 more by splitting your money and leveraging it.

funds only go into interpleader after months of sitting in escrow. the court just does not hand the money to the seller either.. if not agreed upon the funds go to the state etc.

I will add that to your question of 10% or 20%, you need to ask yourself whether you need the cashflow or not. 10% down would leave some money with which to buy more properties.

Hard money loan that covered 100% of rehab and 90% of purchase.

By using the BRRRR strategy, you only need to put down money once.

So even if you had a buy out agreement negotiated up front and execute that buy out agreement, the bank would still require him to be guarantor unless something drastic changed on your side financially.The best scenario here would be to purchase and rehab the property using a hard money lender or bridge lender.