Are you looking to sell a flip or are you in need of funding for a potential flip?

Further, decline would result in loss of borrowers funds, resulting in having to pay back funds which are no longer available to earn income. in the case of using your home as collateral for the loan in question, the result is much higher monthly mortgage payments with no corresponding income offset, and much lower equity in the home.  

There are also several funds out there that provide high single digit yields that are low risk. 

Quote from @Jacob Sherman: you can utilize no income no doc construction loans . fund 50% of the land 100% of construction upto 65% ARV .

The answer to this will come down to comfort level, funds available, and strategy you are looking to implement. 

If your firend wants to stay in the place AND has the funds/income to do so, they need to refinance in their name ASAP (as part of the process), not 5 yeas from now, not if they remarry, not 10years from now.   

Biggest gains are if you do it out of your IRAs.

They offer a $10K repair fund to fix damages in addition to SD plus warranty for appliance repair etc.I have no say in whom they choose to move in, whether there are animals, limit on # of occupants etc. they reserve right to inspect property so i have no idea if they can tell me to remodel, paint etc.does this make sense i have a vacancy coming up in October (bad rental timing).

The idea of raising funds from new investors to get them involved in selling lease option houses to tenants does not pass the sniff test.In a nutshell, this is why lease option is so terrible.

Also - there are some other ways to gather funds to purchase more properties.