After seeing the house, I wouldn't even have made an offer. 3-4" of water in the basement, mold through the basement, ridge beam bowed down, pushing exterior walls out and questionable temporary posts in the basement under that same area.

I was going to mention that that price seemed very steep for a non-specialty contractor, and paying on an hourly basis was a major red flag, but I think I now understand.You're already in a potentially bad spot having a family member owe you money, but getting into a contractor arrangement to pay it off could just be compounded issues.That said, to answer your question, I'd hire the guy exactly like you would with any other contractor -- Scope of Work, Independent Contractor Agreement, Lien Waivers, Payment Schedule, W9, etc. -- and pay him like you would any other contractor. 

Currently I am paying 1430 (w/compound account) with FHA but after dropping off PMI and getting a lower mortgage rate I estimate it to be somewhere about 150 per month lesstherefore profiting about 600-700 per month. ( I live in a community and other homes rented for 2K (and they are smaller in size).

Then your investments start compounding and it’s easy to scale from there by trading up with 1031 exchange and refinancing.People will spend $100/month and wait there entire life trying to win $1M on scratch off tickets to retire broke, but if they would make the sacrifices above for 2-3 years they have the fortune.  

I am sure you realize that it needs to be paid back in a short amount of time (usually 10 years from the day you secured the HELOC) with compounding interest.

Bowing in the middle?

Trust me over 5 to 10 years, these small wins start to add up and compound.

A refi will only compound cash flow issues.But you need to examine the impacts of selling and leaving the real estate sector now. 

If you have to liquidate your stocks to maintain your rental, there is a very high opportunity cost of losing the compounding of your returns over the life of your investment.This is where @Paul Vail keeps reiterating the point of being conservative with a healthy cash cushion.

You would be missing one of the main benefits of the retirement plan, which is tax-deferred growth and also advantage of compounding.